**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C.  20549**
 **FORM
        10-Q**
 
 
 (Mark
        One)
 
 x
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
                FOR
                  THE QUARTERLY PERIOD ENDED**SEPTEMBER 30, 2007,**
                  ORo
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934
                FOR
                  THE TRANSITION PERIOD FROM _______________ TO
                  _________________
 Commission
        file number **1-14369**
 
 **AMERICAN
        COMMUNITY PROPERTIES TRUST**
 (Exact
        name of registrant as specified in its charter)
 
 **MARYLAND**
                (State
                  or other jurisdiction of incorporation or organization)
              **52-2058165**
                (I.R.S.
                  Employer Identification No.)
 **222
        Smallwood Village Center**
 **St.
        Charles, Maryland  20602**
 (Address
        of principal executive offices)(Zip Code)
 **(301)
        843-8600**
 (Registrant's
        telephone number, including area code)
 
 **Not
        Applicable**
 (Former
        name, former address and former fiscal year, if changed since last
        report)
 
 Indicate
        by check mark whether the registrant: (1) has filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 
 Yes
x                                No
        o
 
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “an accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
   Large
        accelerated filer o                          Accelerated
        filer oNon-accelerated filer x
    Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
   Yes
o
        No x
   
 **As
        of November 8, 2007, there were 5,229,954 Common Shares, par value $0.01
        per
        share, issued and outstanding**
  *-1-*
  **AMERICAN
        COMMUNITY PROPERTIES TRUST**
 **FORM
        10-Q**
 **SEPTEMBER
        30, 2007**
 **TABLE
        OF CONTENTS**
 Page
                  Number**PART
                  I**
              **FINANCIAL
                  INFORMATION**Item
                  1.
              Consolidated
                  Financial StatementsConsolidated
                  Statements of Income for the Nine Months
                  Ended September 30, 2007 (Unaudited) and September 30, 2006
                  (Unaudited)
              3Consolidated
                  Statements of Income for the Three Months
                  Ended September 30, 2007 (Unaudited) and September 30, 2006
                  (Unaudited)
              4Consolidated
                  Balance Sheets as of September 30,
                  2007 (Unaudited) and December 31, 2006 (Audited)
              5Consolidated
                  Statement of Changes in
                  Shareholders' Equity for the Nine Months Ended September 30, 2007
                  (Unaudited)
              6Consolidated
                  Statements of Cash Flows for the Nine
                  Months Ended September 30, 2007 (Unaudited) and September 30, 2006
                  (Unaudited)
              7Notes
                  to Consolidated Financial Statements
                  (Unaudited)
              8Item
                  2.
              Management's
                  Discussion and Analysis of
                  Financial Condition and Results of Operations for the Nine Months
                  Ended
                  September 30, 2007 and 2006
              21Item
                  3.
              Quantitative
                  and Qualitative Disclosures about Market
                  Risk
              32Item
                  4.
              Controls
                  and Procedures
              32**PART
                  II**
              **OTHER
                  INFORMATION**Item
                  1.
              Legal
                  Proceedings
              33Item
                  1A.
              Risk
                  Factors
              33Item
                  2
              Unregistered
                  Sales of Equity Securities and Use
                  of Proceeds
              33Item
                  3.
              Defaults
                  Upon Senior
                  Securities
              33Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              33Item
                  5.
              Other
                  Information
              33Item
                  6.
              Exhibits
              33Signatures
              34
 *-2-*
 *Table
              of
              Contents*
 **AMERICAN
                  COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                  STATEMENTS OF
                  INCOME****FOR
                  THE NINE MONTHS ENDED SEPTEMBER 30**(In
                  thousands, except per share amounts)(Unaudited)**2007**
              
              
              **2006****Revenues**Rental
                  property
              
              **$**
              **45,249**
              
              
              $
              39,946Community
                  development-land sales
              
              ****
              **8,032**
              
              
              
              11,317Homebuilding-home
                  sales
              
              ****
              **6,113**
              
              
              
              16,343Management
                  and other fees, substantially all from related entities
              
              ****
              **756**
              
              
              
              885Reimbursement
                  of expenses related to managed entities
              
              ****
              **1,307**
              
              
              
              1,622Total
                  revenues
              
              ****
              **61,457**
              
              
              
              70,113**Expenses**Rental
                  property operating expenses
              
              ****
              **22,901**
              
              
              
              19,763Cost
                  of land sales
              
              ****
              **5,930**
              
              
              
              6,156Cost
                  of home sales
              
              ****
              **4,399**
              
              
              
              12,310General,
                  administrative, selling and marketing
              
              ****
              **8,600**
              
              
              
              6,703Depreciation
                  and amortization
              
              ****
              **7,009**
              
              
              
              6,239Expenses
                  reimbursed from managed entities
              
              ****
              **1,307**
              
              
              
              1,622Total
                  expenses
              
              ****
              **50,146**
              
              
              
              52,793**Operating
                  Income**
              
              ****
              **11,311**
              
              
              
              17,320**Other
                  income (expense)**Interest
                  and other income
              
              ****
              **1,178**
              
              
              
              838Equity
                  in earnings from unconsolidated entities
              
              ****
              **2,020**
              
              
              
              510Interest
                  expense
              
              ****
              **(14,037**
              **)**
              
              
              (10,915
              )Minority
                  interest in consolidated entities
              
              ****
              **(1,750**
              **)**
              
              
              (2,997
              )**Income
                  (loss) before provision (benefit) for income
                  taxes**
              
              ****
              **(1,278**
              **)**
              
              
              4,756**Provision
                  (benefit) for income taxes**
              
              ****
              **(19**
              **)**
              
              
              1,754**Net
                  (loss) income**
              
              **$**
              **(1,259**
              **)**
              
              $
              3,002**Earnings
                  per share****Basic**
              
              **$**
              **(0.24**
              **)**
              
              $
              0.58**Weighted
                  average shares outstanding****Basic**
              
              ****
              **5,205**
              
              
              
              5,199**Diluted**
              
              ****
              **5,212**
              
              
              
              5,199**Cash
                  dividends per share**
              
              ***$***
              **0.30**
              
              
              $
              0.73*The
                  accompanying notes are an integral part of these consolidated
                  statements.*
  *-3-*
 *Table
            of
            Contents*
  
 **AMERICAN
                  COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                  STATEMENTS OF
                  INCOME****FOR
                  THE THREE MONTHS ENDED SEPTEMBER 30**(In
                  thousands, except per share amounts)(Unaudited)**2007**
              
              
              **2006****Revenues**Rental
                  property
              
              **$**
              **15,417**
              
              
              $
              13,808Community
                  development-land sales
              
              ****
              **2,063**
              
              
              
              4,691Homebuilding-home
                  sales
              
              ****
              **899**
              
              
              
              5,084Management
                  and other fees, substantially all from related entities
              
              ****
              **250**
              
              
              
              320Reimbursement
                  of expenses related to managed entities
              
              ****
              **414**
              
              
              
              518Total
                  revenues
              
              ****
              **19,043**
              
              
              
              24,421**Expenses**Rental
                  property operating expenses
              
              ****
              **7,787**
              
              
              
              6,947Cost
                  of land sales
              
              ****
              **1,574**
              
              
              
              2,490Cost
                  of home sales
              
              ****
              **583**
              
              
              
              3,789General,
                  administrative, selling and marketing
              
              ****
              **3,232**
              
              
              
              2,169Depreciation
                  and amortization
              
              ****
              **2,428**
              
              
              
              2,165Expenses
                  reimbursed from managed entities
              
              ****
              **414**
              
              
              
              518Total
                  expenses
              
              ****
              **16,018**
              
              
              
              18,078**Operating
                  Income**
              
              ****
              **3,025**
              
              
              
              6,343**Other
                  income (expense)**Interest
                  and other income
              
              ****
              **288**
              
              
              
              620Equity
                  in earnings from unconsolidated entities
              
              ****
              **175**
              
              
              
              167Interest
                  expense
              
              ****
              **(4,700**
              **)**
              
              
              (3,715
              )Minority
                  interest in consolidated entities
              
              ****
              **(193**
              **)**
              
              
              (331
              )**Income
                  (loss) before provision (benefit) for income
                  taxes**
              
              ****
              **(1,405**
              **)**
              
              
              3,084**Provision
                  (benefit) for income taxes**
              
              ****
              **(307**
              **)**
              
              
              1,040**Net
                  (loss) income**
              
              **$**
              **(1,098**
              **)**
              
              $
              2,044**Earnings
                  per share****Basic**
              
              **$**
              **(0.21**
              **)**
              
              $
              0.39**Weighted
                  average shares outstanding****Basic**
              
              ****
              **5,207**
              
              
              
              5,201**Diluted**
              
              ****
              **5,214**
              
              
              
              5,201**Cash
                  dividends per share**
              
              ***$***
              **0.10**
              
              
              $
              0.10*The
                  accompanying notes are an integral part of these consolidated
                  statements.*
 
  *-4-*
 *Table
            of
            Contents*
   **AMERICAN
                  COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                  BALANCE
                  SHEETS****(In
                  thousands, except share and per share amounts)****As
                  of**
                **September
                  30, 2007**
                **(Unaudited)**
              
              
              **As
                  of**
                **December
                  31,****2006**
                **(Audited)****ASSETS****ASSETS:****Investments
                  in real estate:****Operating
                  real estate, net of accumulated depreciation**
              
              **$**
              **165,451**
              
              
              **$**
              **142,046****of
                  $149,130 and $142,458 respectively****Land
                  and development costs**
              
              ****
              **83,243**
              
              
              ****
              **67,993****Condominiums
                  under construction**
              
              ****
              **5,413**
              
              
              ****
              **9,265****Rental
                  projects under construction or development**
              
              ****
              **707**
              
              
              ****
              **24,143****Investments
                  in real estate, net**
              
              ****
              **254,814**
              
              
              ****
              **243,447****Cash
                  and cash equivalents**
              
              ****
              **18,643**
              
              
              ****
              **27,459****Restricted
                  cash and escrow deposits**
              
              ****
              **21,518**
              
              
              ****
              **19,677****Investments
                  in unconsolidated real estate entities**
              
              ****
              **6,552**
              
              
              ****
              **6,591****Receivable
                  from bond proceeds**
              
              ****
              **10,425**
              
              
              ****
              **13,710****Accounts
                  receivable**
              
              ****
              **2,514**
              
              
              ****
              **4,320****Deferred
                  tax assets**
              
              ****
              **33,050**
              
              
              ****
              **18,157****Property
                  and equipment, net of accumulated depreciation**
              
              ****
              **1,131**
              
              
              ****
              **1,157****Deferred
                  charges and other assets, net of amortization of****$2,542
                  and $1,655 respectively**
              
              ****
              **11,557**
              
              
              ****
              **12,181****Total
                  Assets**
              
              **$**
              **360,204**
              
              
              **$**
              **346,699****LIABILITIES
                  AND SHAREHOLDERS' EQUITY****LIABILITIES:****Non-recourse
                  debt**
              
              **$**
              **279,796**
              
              
              **$**
              **270,720****Recourse
                  debt**
              
              ****
              **25,952**
              
              
              ****
              **29,351****Accounts
                  payable and accrued liabilities**
              
              ****
              **25,709**
              
              
              ****
              **24,191****Deferred
                  income**
              
              ****
              **3,112**
              
              
              ****
              **3,591****Accrued
                  current income tax liability**
              
              ****
              **13,939**
              
              
              ****
              **2,992****Total
                  Liabilities**
              
              ****
              **348,508**
              
              
              ****
              **330,845****SHAREHOLDERS'
                  EQUITY****Common
                  shares, $.01 par value, 10,000,000 shares
                  authorized,****5,229,954 shares issued and outstanding as of September 30, 2007 and
                  December 31, 2006**
              
              ****
              **52**
              
              
              ****
              **52****Treasury
                  stock, 67,709 shares at cost**
              
              ****
              **(376**
              **)**
              
              ****
              **(376**
              **)******Additional
                  paid-in capital**
              
              ****
              **17,345**
              
              
              ****
              **17,238******Retained
                  (deficit) earnings**
              
              ****
              **(5,325**
              **)**
              
              ****
              **(1,060**
              **)******Total
                  Shareholders' Equity**
              
              ****
              **11,696**
              
              
              ****
              **15,854****Total
                  Liabilities and Shareholders' Equity**
              
              **$**
              **360,204**
              
              
              **$**
              **346,699*****The
                  accompanying notes are an integral part of these consolidated
                  statements.***
 
  *-5-*
 *Table
            of Contents*
  
 **AMERICAN
                  COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                  STATEMENTS OF CHANGES IN
                  SHAREHOLDERS' EQUITY**(In
                  thousands, except share amounts)**Common
                  Shares**
              
              
              
              
              
              **Additional**
              
              
              **Retained****Par**
              
              
              **Treasury**
              
              
              **Paid-in**
              
              
              **(Deficit)****Number**
              
              
              **Value**
              
              
              **Stock**
              
              
              **Capital**
              
              
              **Earnings**
              
              
              **Total**Balance
                  December 31, 2006 (Audited)
              
              
              5,229,954
              
              
              $
              52
              
              
              $
              (376
              )
              
              $
              17,238
              
              
              $
              (1,060
              )
              
              $
              15,854Net
                  income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,259
              )
              
              
              (1,259
              )Dividends
                  paid
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,548
              )
              
              
              (1,548
              )Cumulative
                  effect of change in accounting for FIN 48
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,458
              )
              
              
              (1,458
              )Amortization
                  of Trustee Restricted Shares
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              107
              
              
              
              -
              
              
              
              107**Balance
                  September 30, 2007 (Unaudited)**
              
              ****
              **5,229,954**
              
              
              **$**
              **52**
              
              
              **$**
              **(376**
              **)**
              
              **$**
              **17,345**
              
              
              **$**
              **(5,325**
              **)**
              
              **$**
              **11,696***The
                  accompanying notes are an integral part of those consolidated
                  statements.*
  *-6-*
 *Table
            of Contents*
  
 **AMERICAN
                  COMMUNITY PROPERTIES TRUST****CONSOLIDATED
                  STATEMENTS OF CASH
                  FLOWS****FOR
                  THE NINE MONTHS ENDED SEPTEMBER 30**(In
                  thousands)(Unaudited)**2007**
              
              
              2006**Cash
                  Flows from Operating Activities**Net
                  (loss) income
              
              **$**
              **(1,259**
              **)**
              
              $
              3,002Adjustments
                  to reconcile net income to net cash provided byoperating
                  activities:Depreciation
                  and amortization
              
              ****
              **7,009**
              
              
              
              6,239Distribution
                  to minority interests in excess of basis
              
              ****
              **1,988**
              
              
              
              2,957Benefit
                  for deferred income taxes
              
              ****
              **(5,019**
              **)**
              
              
              (542
              )Equity
                  in earnings-unconsolidated entities
              
              ****
              **(2,020**
              **)**
              
              
              (510
              )Distribution
                  of earnings from unconsolidated entities
              
              ****
              **521**
              
              
              
              510Cost
                  of land sales
              
              ****
              **5,930**
              
              
              
              6,156Cost
                  of home sales
              
              ****
              **4,399**
              
              
              
              12,310Stock
                  based compensation expense
              
              ****
              **190**
              
              
              
              219Amortization
                  of deferred loan costs
              
              ****
              **643**
              
              
              
              411Changes
                  in notes and accounts receivable
              
              ****
              **1,806**
              
              
              
              (71
              )Additions
                  to community development assets
              
              ****
              **(23,180**
              **)**
              
              
              (16,789
              )Right
                  of way easement
              
              ****
              **2,000**
              
              
              
              -Homebuilding-construction
                  expenditures
              
              ****
              **(547**
              **)**
              
              
              (5,860
              )Deferred
                  income-joint venture
              
              ****
              **(479**
              **)**
              
              
              (75
              )Changes
                  in accounts payable, accrued liabilities
              
              ****
              **1,050**
              
              
              
              (2,685
              )Net
                  cash (used in) provided by operating activities
              
              ****
              **(6,968**
              **)**
              
              
              5,272**Cash****Flows
                  from Investing Activities**Investment
                  in apartment construction
              
              ****
              **(452**
              **)**
              
              
              (16,557
              )Change
                  in investments - unconsolidated entities
              
              ****
              **1,538**
              
              
              
              27Cash
                  from newly consolidated properties
              
              ****
              **-**
              
              
              
              4,723Change
                  in restricted cash
              
              ****
              **(1,841**
              **)**
              
              
              503Additions
                  to rental operating properties, net
              
              ****
              **(6,298**
              **)**
              
              
              (20,096
              )Other
                  assets
              
              ****
              **(221**
              **)**
              
              
              (1,176
              )Net
                  cash used in investing activities
              
              ****
              **(7,274**
              **)**
              
              
              (32,576
              )**Cash****Flows
                  from Financing Activities**Cash
                  proceeds from debt financing
              
              ****
              **23,339**
              
              
              
              51,847Payment
                  of debt
              
              ****
              **(19,678**
              **)**
              
              
              (26,270
              )County
                  Bonds proceeds, net of undisbursed funds
              
              ****
              **5,301**
              
              
              
              2,041Payments
                  of distributions to minority interests
              
              ****
              **(1,988**
              **)**
              
              
              (2,957
              )Dividends
                  paid to shareholders
              
              ****
              **(1,548**
              **)**
              
              
              (3,745
              )Net
                  cash provided by financing activities
              
              ****
              **5,426**
              
              
              
              20,916**Net
                  Decrease in Cash and Cash Equivalents**
              
              ****
              **(8,816**
              **)**
              
              
              (6,388
              )**Cash
                  and Cash Equivalents, Beginning of Period**
              
              ****
              **27,459**
              
              
              
              21,156**Cash
                  and Cash Equivalents, End of Period**
              
              **$**
              **18,643**
              
              
              $
              14,768*The
                  accompanying notes are an integral part of these consolidated
                  statements.*
  *-7-*
 *Table
            of Contents*
 **AMERICAN
        COMMUNITY PROPERTIES TRUST**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2007**
 (Unaudited)
 
 **(1)**
              **ORGANIZATION**
 
 American
        Community Properties Trust
        ("ACPT") is a self-managed holding company that is primarily engaged in the
        investment of rental properties, property management services, community
        development, and homebuilding.  These operations are concentrated in
        the Washington, D.C. metropolitan area and Puerto Rico and are carried out
        through American Rental Properties Trust ("ARPT"), American Rental Management
        Company ("ARMC "), American Land Development U.S., Inc. ("ALD") and IGP Group
        Corp. ("IGP Group") and their subsidiaries.
 ACPT
        is taxed as a U.S. partnership and
        its taxable income flows through to its shareholders.  ACPT is subject to
        Puerto Rico taxes on IGP Group's taxable income, generating foreign tax credits
        that are passed through to ACPT's shareholders.  An IRS regulation
        eliminating the pass through of these tax credits to ACPT’s shareholders has
        been proposed and is expected to become effective in 2007.  ACPT's federal
        taxable income consists of certain passive income from IGP Group, a controlled
        foreign corporation, distributions from IGP Group, and dividends from ACPT's
        U.S. subsidiaries.  Other than Interstate Commercial Properties ("ICP"),
        which is taxed as a Puerto Rico corporation, the taxable income from the
        remaining Puerto Rico operating entities passes through to IGP Group or
        ALD.  Of this taxable income, only the portion of taxable income applicable
        to the profits, losses or gains on the residential land sold in Parque Escorial
        passes through to ALD.  ALD, ARMC, and ARPT are taxed as U.S.
        corporations.  The taxable income from the U.S. apartment properties flows
        through to ARPT.
 
 **(2)**
              **BASIS
                  OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
                  POLICIES**
 
 **Basis
        of Presentation**
 The
        accompanying consolidated financial statements include the accounts of American
        Community Properties Trust and its majority owned subsidiaries and partnerships,
        after eliminating all intercompany transactions.  All of the entities
        included in the consolidated financial statements are hereinafter referred
        to
        collectively as the "Company" or "ACPT."
 The
        Company consolidates entities that are not variable interest entities as
        defined
        by Financial Accounting Standard Board (“FASB”) Interpretation No. 46 (revised
        December 2003) (“FIN 46 (R)”) in which it owns, directly or indirectly, a
        majority voting interest in the entity.  In addition, the Company
        consolidates entities, regardless of ownership percentage, in which the Company
        serves as the general partner and the limited partners do not have substantive
        kick-out rights or substantive participation rights in accordance with Emerging
        Issues Task Force Issue 04-05, "*Determining Whether a General Partner, or
        the General Partners as a Group, Controls a Limited Partnership or Similar
        Entity When the Limited Partners Have Certain Rights*," (“EITF
        04-05”).  The assets of consolidated real estate partnerships not 100%
        owned by the Company are generally not available to pay creditors of the
        Company.
 The
        consolidated group includes ACPT
        and its four major subsidiaries, American Rental Properties Trust, American
        Rental Management Company, American Land Development U.S., Inc., and IGP
        Group
        Corp.  In addition, the consolidated group includes the following
        other entities:
 Alturas
                  del Senorial Associates Limited Partnership
              
              LDA
                  Group, LLCAmerican
                  Housing Management Company
              
              Milford
                  Station I, LLCAmerican
                  Housing Properties L.P.
              
              Milford
                  Station II, LLCBannister
                  Associates Limited Partnership
              
              Monserrate
                  Associates Limited PartnershipBayamon
                  Garden Associates Limited Partnership
              
              New
                  Forest Apartments, LLCCarolina
                  Associates Limited Partnership S.E.
              
              Nottingham
                  South, LLCCoachman's
                  Apartments, LLC
              
              Owings
                  Chase, LLCColinas
                  de San Juan Associates Limited Partnership
              
              Palmer
                  Apartments Associates Limited PartnershipCrossland
                  Associates Limited Partnership
              
              Prescott
                  Square, LLCEscorial
                  Office Building I, Inc.
              
              St.
                  Charles Community, LLCEssex
                  Apartments Associates Limited Partnership
              
              San
                  Anton Associates S.E.Fox
                  Chase Apartments, LLC
              
              Sheffield
                  Greens Apartments, LLCHeaden
                  House Associates Limited Partnership
              
              Torres
                  del Escorial, Inc.Huntington
                  Associates Limited Partnership
              
              Turabo
                  Limited Dividend PartnershipInterstate
                  Commercial Properties, Inc.
              
              Valle
                  del Sol Associates Limited PartnershipInterstate
                  General Properties Limited Partnership, S.E.
              
              Village
                  Lake Apartments, LLCJardines
                  de Caparra Associates Limited Partnership
              
              Wakefield
                  Terrace Associates Limited PartnershipLancaster
                  Apartments Limited Partnership
              
              Wakefield
                  Third Age Associates Limited PartnershipLand
                  Development Associates S.E.
  *-8-*
 *Table
            of Contents*
 The
        Company's
        investments in entities that it does not control are recorded using the equity
        method of accounting.  Refer to Note 3 for further discussion
        regarding Investments in Unconsolidated Real Estate Entities.
 
 **Interim
        Financial Reporting**
 These
        unaudited financial statements have been prepared in accordance with accounting
        principles generally accepted in the United States ("GAAP") for interim
        financial information and pursuant to the rules and regulations of the
        Securities and Exchange Commission. Certain information and note disclosures
        normally included in financial statements prepared in accordance with GAAP
        have
        been condensed or omitted. The Company has no items of other comprehensive
        income for any of the periods presented. In the opinion of management, these
        unaudited financial statements reflect all adjustments (which are of a normal
        recurring nature) necessary to present a fair statement of results for the
        interim period. While management believes that the disclosures presented
        are
        adequate to make the information not misleading, these financial statements
        should be read in conjunction with the financial statements and the notes
        thereto included in the Company's Annual Report filed on Form 10-K for the
        year
        ended December 31, 2006.  The operating results for the nine and three
        months ended September 30, 2007 and 2006 are not necessarily indicative of
        the
        results that may be expected for the full year. Net income per share is
        calculated based on weighted average shares outstanding.
 
 **Use
        of Estimates**
 The
        preparation of financial statements in conformity with GAAP requires management
        to make estimates and assumptions that affect the amounts reported in the
        financial statements, and accompanying notes and disclosures. These estimates
        and assumptions are prepared using management's best judgment after considering
        past and current events and economic conditions. Actual results could differ
        from those estimates and assumptions.
 
 **Implementation
        of FIN 48**
 In
        July
        2006, the FASB issued FASB Interpretation No. 48, “*Accounting for
        Uncertainty in Income Taxes*” (“FIN 48”). FIN 48 is an interpretation of
        FASB Statement No. 109, “*Accounting for Income Taxes*,” and it
        seeks to reduce the diversity in practice associated with certain aspects
        of
        measurement and recognition in accounting for income taxes. In addition,
        FIN 48
        requires expanded disclosure with respect to the uncertainty in income
        taxes.  The Company implemented FIN 48 as of January 1,
        2007.  See Note 7 for further discussions.
 
 **Cash
        Dividends**
 On
        February 28, 2007, the Board of Trustees declared a cash dividend of $0.10
        per
        share, payable on March 28, 2007, to shareholders of record on March 14,
        2007.  On May 15, 2007, the Board of Trustees declared a cash dividend
        of $0.10 per share, payable on June 13, 2007, to shareholders of record on
        May
        31, 2007.  On August 13, 2007, the Board of Trustees declared a cash
        dividend of $0.10 per share, payable on September 12, 2007 to shareholders
        of
        record on August 28, 2007.
 
 **Impairment
        of Long-Lived Assets**
 ACPT
        carries its rental properties,
        homebuilding inventory, land and development costs at the lower of cost or
        fair
        value in accordance with Statement of Financial Accounting Standards ("SFAS")
        No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
        For
        real estate assets such as our rental properties which the Company plans
        to hold
        and use, which includes property to be developed in the future, property
        currently under development and real estate projects that are completed or
        substantially complete, we evaluate whether the carrying amount of each of
        these
        assets will be recovered from their undiscounted future cash flows arising
        from
        their use and eventual disposition. If the carrying value were to be greater
        than the undiscounted future cash flows, we would recognize an impairment
        loss
        to the extent the carrying amount is not recoverable. Our estimates of the
        undiscounted operating cash flows expected to be generated by each asset
        are
        performed on an individual project basis and based on a number of assumptions
        that are subject to economic and market uncertainties, including, among others,
        demand for apartment units, competition, changes in market rental rates,
        and
        costs to operate and complete each project. There have been no impairment
        charges for the nine- and three-month periods ended September 30, 2007 and
        2006.
 The
        Company evaluates, on an individual project basis, whether the carrying value
        of
        its substantially completed real estate projects, such as our homebuilding
        inventory that are to be sold, will be recovered based on the fair value
        less
        cost to sell. If the carrying value were to be greater than the fair value
        less
        costs to sell, we would recognize an impairment loss to the extent the carrying
        amount is not recoverable. Our estimates of the fair value less costs to
        sell
        are based on a number of assumptions that are subject to economic and market
        uncertainties, including, among others, comparable sales, demand for commercial
        and residential lots and competition. The Company performed similar reviews
        for
        land held for future development and sale considering such factors as the
        cash
        flows associated with future development expenditures. Should this evaluation
        indicate an impairment has occurred, the Company will record an impairment
        charge equal to the excess of the historical cost over fair value less costs
        to
        sell.  There have been no impairment charges for the nine- and
        three-month periods ended September 30, 2007 and 2006.
  *-9-*
 *Table
            of Contents*
 **Depreciable
        Assets and Depreciation**
 The
        Company's operating real estate is stated at cost and includes all costs
        related
        to acquisitions, development and construction. The Company makes assessments
        of
        the useful lives of our real estate assets for purposes of determining the
        amount of depreciation expense to reflect on our income statement on an annual
        basis. The assessments, all of which are judgmental determinations, are as
        follows:
 
 ·
              Buildings
                  and improvements are depreciated over five to forty years using
                  the
                  straight-line or double-declining balance
                  methods,
 ·
              Furniture,
                  fixtures and equipment are depreciated over five to seven years
                  using the
                  straight-line method,
 ·
              Leasehold
                  improvements are capitalized and depreciated over the lesser of
                  the life
                  of the lease or their estimated useful
                  life,
 ·
              Maintenance
                  and other repair costs are charged to operations as
                  incurred.
 
 The
        table
        below presents the major classes of depreciable assets as of September 30,
        2007
        and December 31, 2006 (in thousands):
 
 **September
                  30,**
              
              
              December
                  31,**2007**
              
              
              2006**(Unaudited)**
              
              
              (Audited)Building
              
              **$**
              **264,611**
              
              
              $
              240,264Building
                  improvements
              
              ****
              **10,263**
              
              
              
              8,022Equipment
              
              ****
              **14,195**
              
              
              
              12,569****
              **289,069**
              
              
              
              260,855*Less:*Accumulated depreciation
              
              ****
              **149,130**
              
              
              
              142,458****
              **139,939**
              
              
              
              118,397Land
              
              ****
              **25,512**
              
              
              
              23,649Operating
                  properties, net
              
              **$**
              **165,451**
              
              
              $
              142,046
  *Other
        Property and Equipment*
 In
        addition, the Company owned other property and equipment of $1,131,000 and
        $1,157,000, net of accumulated depreciation of $2,278,000 and $2,101,000
        respectively, as of September 30, 2007, and December 31, 2006,
        respectively.
 
 *Depreciation*
 Total
        depreciation expense was $7,009,000 and $6,239,000 for the nine months ended
        September 30, 2007 and 2006, respectively, and $2,428,000 and $2,165,000
        for the
        three months ended September 30, 2007 and 2006, respectively.
 
 **Impact
        of Recently Issued Accounting Standards**
 
 *SFAS
        157 and 159*
 In
        September 2006, the FASB issued SFAS 157, “*Fair Value Measurements*” and
        in February 2007, the FASB issued SFAS 159, *“The Fair Value Option for
        Financial Assets and Financial Liabilities.”*SFAS 157 defines
        fair values as the price that would be received to sell an asset or paid
        to
        transfer a liability in an orderly transaction between market participants
        in
        the market in which the reporting entity transacts. SFAS 157 applies whenever
        other standards require assets or liabilities to be measured at fair value
        and
        does not expand the use of fair value in any new circumstances. SFAS 157
        establishes a hierarchy that prioritizes the information used in developing
        fair
        value estimates. The hierarchy gives the highest priority to quoted prices
        in
        active markets and the lowest priority to unobservable data, such as the
        reporting entity’s own data. SFAS 157 requires fair value measurements to be
        disclosed by level within the fair value hierarchy. SFAS 157 is effective
        for
        fiscal years beginning after November 15, 2007.
 SFAS
        159
        permits entities to choose to measure many financial instruments and certain
        other items at fair value.  The fair value election is designed to
        improve financial reporting by providing entities with the opportunity to
        mitigate volatility in reported earnings caused by measuring related assets
        and
        liabilities differently without having to apply complex hedge accounting
        provisions.  SFAS 159 is effective for fiscal years beginning after
        November 15, 2007.  We have not yet determined the impact that SFAS
        157 and SFAS 159 will have on our financial statements.
 
 *-10-*
 *Table
            of Contents*
 *EITF
        Issue No. 06-08*
 In
        November 2006, the Emerging Issues Task force of the FASB (“EITF”) reached a
        consensus on EITF Issue No. 06-08, “*Applicability of a Buyer’s Continuing
        Investment under FASB Statement No.* *66,
        Accounting for Sales of Real Estate, for Sales of Condominiums*” (“EITF
        06-08”).  EITF 06-08 will require condominium sales to meet the
        continuing investment criterion in FAS No. 66 in order for profit to be
        recognized under the percentage-of-completion method.  EITF 06-08 will
        be effective for annual reporting periods beginning after March 15,
        2007.  The cumulative effect of applying EITF 06-08, if any, is to be
        reported as an adjustment to the opening balance of retained earnings in
        the
        year of adoption.  We are evaluating the impact that EITF 06-08 may
        have, if any, on our financial statements.
  **(3)**
              **INVESTMENT
                  IN UNCONSOLIDATED REAL ESTATE
                  ENTITIES**
 
 The
        Company accounts for investments in unconsolidated real estate entities that
        are
        not considered variable interest entities under FIN 46(R) in accordance with
        SOP
        78-9 *"Accounting for Investments in Real Estate Ventures"*and APB
        Opinion No. 18 *"The Equity Method of Accounting for Investments in Common
        Stock"*. For entities that are considered variable interest entities under
        FIN 46(R), the Company performs an assessment to determine the primary
        beneficiary of the entity as required by FIN 46(R). The Company accounts
        for
        variable interest entities in which the Company is not a primary beneficiary
        and
        does not bear a majority of the risk of expected loss in accordance with
        the
        equity method of accounting.
 The
        Company considers many factors in determining whether or not an investment
        should be recorded under the equity method, such as economic and ownership
        interests, authority to make decisions, and contractual and substantive
        participating rights of the partners. Income and losses are recognized in
        accordance with the terms of the partnership agreements and any guarantee
        obligations or commitments for financial support. The Company's investments
        in
        unconsolidated real estate entities accounted for under the equity method
        of
        accounting currently consists of general partnership interests in two limited
        partnerships which own apartment properties in the United States; a limited
        partnership interest in a limited partnership that owns a commercial property
        in
        Puerto Rico; and a 50% ownership interest in a joint venture formed as a
        limited
        liability company.
 
 *Apartment
        Partnerships*
 The
        unconsolidated apartment partnerships as of September 30, 2007 and December
        31,
        2006 included Brookside Gardens Limited Partnership and Lakeside Apartments
        Limited Partnership that collectively represent 110 rental units.  We
        have determined that these two entities are variable interest entities under
        FIN
        46(R).  However, the Company is not required to consolidate the
        partnerships due to the fact that it is not the primary beneficiary and does
        not
        bear the majority of the risk of expected losses. The Company holds an economic
        interest in Brookside and Lakeside but, as a general partner, we have
        significant influence over operations of these entities that is disproportionate
        to our economic ownership.  In accordance with SOP 78-9 and APB No.
        18, these investments are accounted for under the equity method.  The
        Company is exposed to losses consisting of our net investment, loans and
        unpaid
        fees for Brookside of $214,000 and $189,000 and for Lakeside of $166,000
        and
        $172,000 as of September 30, 2007, and December 31, 2006,
        respectively.  All amounts are fully reserved. Pursuant to the
        partnership agreement for Brookside, the Company, as general partner, is
        responsible for providing operating deficit loans to the partnership in the
        event that it is not able to generate sufficient cash flows from its operating
        activities.
 
 *Commercial
        Partnerships*
 The
        Company holds a limited partner interest in a commercial property in Puerto
        Rico
        that it accounts for under the equity method of accounting.  ELI, S.E.
        ("ELI"), is a partnership formed for the purpose of constructing a building
        for
        lease to the State Insurance Fund of the Government of Puerto
        Rico.  ACPT contributed the land in exchange for $700,000 and a 27.82%
        ownership interest in the partnership's assets, equal to a 45.26% interest
        in
        cash flow generated by the thirty-year lease of the building.
 On
        April
        30, 2004, the Company purchased a 50% limited partnership interest in El
        Monte
        Properties, S.E. ("El Monte") from Insular Properties Limited Partnership
        ("Insular") for $1,462,500. Insular is owned by the J. Michael Wilson Family,
        a
        related party. In December 2004, a third-party buyer purchased El Monte for
        $20,000,000; $17,000,000 in cash and $3,000,000 in two notes of $1,500,000
        each
        that bear an interest rate of prime plus 2%, with a ceiling of 9%, and mature
        on
        December 3, 2009. The net cash proceeds from the sale of the real estate
        were
        distributed to the partners. As a result, the Company received $2,500,000
        in
        cash and recognized $986,000 of income in 2004. The gain on sale was reduced
        by
        the amount of the seller's note which is subject to future subordination.
        In
        January 2005, El Monte distributed the notes to the partners whereby the
        Company
        received a $1,500,000 note.  The Company determined that the cost
        recovery method of accounting was appropriate for this transaction and
        accordingly, deferred revenue recognition on this note until cash payment
        was
        received.  In January 2007, the Company received $1,707,000, equal to
        the full principal amount due plus all accrued interest outstanding and,
        accordingly, recognized $1,500,000 of equity in earnings from unconsolidated
        entities and $207,000 of interest income.  The Company has no required
        funding obligations and management expects to wind up El Monte’s affairs in
        2007.
  *-11-*
 *Table
            of Contents*
 *Land
        Development Joint Venture*
 In
        September 2004, the Company entered into a joint venture agreement with Lennar
        Corporation for the development of a 352-unit, active adult community located
        in
        St. Charles, Maryland.  The Company manages the project's development
        for a market rate fee pursuant to a management agreement.  In
        September 2004, the Company transferred land to the joint venture in exchange
        for a 50% ownership interest and $4,277,000 in cash.  The Company's
        investment in the joint venture was recorded at 50% of the historical cost
        basis
        of the land with the other 50% recorded within our deferred charges and other
        assets.  The proceeds received are reflected as deferred revenue. The
        deferred revenue and related deferred costs will be recognized into income
        as
        the joint venture sells lots to Lennar.  In March 2005, the joint
        venture closed an $8.0 million non-recourse development loan, which was amended
        in June 2006, December 2006 and again in October 2007.  Included
        within these amendments, the maximum borrowings outstanding on the facility
        was
        reduced to $5.0 million.  For the October 2007 amendment, the
        development loan was modified to provide a one year delay in development
        of the
        project, as to date, lot development has outpaced sales.  Per the
        terms of the loan, both the Company and Lennar provided development completion
        guarantees.  In the nine and three months ended September 30, 2007,
        the joint venture delivered 48 and 18 lots to Lennar, recognizing $1,063,000
        and
        $408,000 in deferred revenue, off-site fees and management fees and $358,000
        and
        $140,000 of deferred costs, respectively.
 The
        following table summarizes the
        financial data and principal activities of the unconsolidated real estate
        entities, which the Company accounts for under the equity method.  The
        information is presented to segregate the apartment partnerships from the
        commercial partnerships as well as our 50% ownership interest in the land
        development joint venture, which are all accounted for as “investments in
        unconsolidated real estate entities” on the balance sheet.
 
 LandDevelopmentApartment
              
              
              Commercial
              
              
              JointProperties
              
              
              Property
              
              
              Venture
              
              
              Total(in
                  thousands)**Summary
                  Financial Position:****Total
                  Assets**September
                  30, 2007
              
              $
              4,970
              
              
              $
              28,242
              
              
              $
              12,491
              
              
              $
              45,703December
                  31, 2006
              
              
              5,142
              
              
              
              27,726
              
              
              
              12,154
              
              
              
              45,022**Total
                  Non-Recourse Debt**September
                  30, 2007
              
              
              3,205
              
              
              
              22,960
              
              
              
              3,861
              
              
              
              30,026December
                  31, 2006
              
              
              3,244
              
              
              
              22,960
              
              
              
              3,476
              
              
              
              29,680**Total
                  Other Liabilities**September
                  30, 2007
              
              
              1,264
              
              
              
              1,046
              
              
              
              1,694
              
              
              
              4,004December
                  31, 2006
              
              
              1,242
              
              
              
              722
              
              
              
              1,744
              
              
              
              3,708**Total
                  Equity**September
                  30, 2007
              
              
              501
              
              
              
              4,236
              
              
              
              6,936
              
              
              
              11,673December
                  31, 2006
              
              
              656
              
              
              
              4,044
              
              
              
              6,934
              
              
              
              11,634**Company's
                  Investment, net (1)**September
                  30, 2007
              
              
              -
              
              
              
              4,724
              
              
              
              1,828
              
              
              
              6,552December
                  31, 2006
              
              
              -
              
              
              
              4,763
              
              
              
              1,828
              
              
              
              6,591**Summary
                  of Operations:****Total
                  Revenue**Nine
                  Months Ended September 30, 2007
              
              $
              604
              
              
              $
              2,730
              
              
              $
              5,560
              
              
              $
              8,894Nine
                  Months Ended September 30, 2006
              
              
              588
              
              
              
              2,742
              
              
              
              2,453
              
              
              
              5,783Three
                  Months Ended September 30, 2007
              
              
              203
              
              
              
              909
              
              
              
              1,951
              
              
              
              3,063Three
                  Months Ended September 30, 2006
              
              
              196
              
              
              
              914
              
              
              
              2,453
              
              
              
              3,563**Net
                  Income (Loss)**Nine
                  Months Ended September 30, 2007
              
              
              (155
              )
              
              
              1,407
              
              
              
              2
              
              
              
              1,254Nine
                  Months Ended September 30, 2006
              
              
              (83
              )
              
              
              1,374
              
              
              
              -
              
              
              
              1,291Three
                  Months Ended September 30, 2007
              
              
              (58
              )
              
              
              470
              
              
              
              -
              
              
              
              412Three
                  Months Ended September 30, 2006
              
              
              (25
              )
              
              
              448
              
              
              
              -
              
              
              
              423**Company's
                  recognition of equity in earnings**Nine
                  Months Ended September 30, 2007
              
              
              (1
              )
              
              
              521
              
              
              
              -
              
              
              
              520Nine
                  Months Ended September 30, 2006
              
              
              -
              
              
              
              510
              
              
              
              -
              
              
              
              510Three
                  Months Ended September 30, 2007
              
              
              -
              
              
              
              175
              
              
              
              -
              
              
              
              175Three
                  Months Ended September 30, 2006
              
              
              -
              
              
              
              167
              
              
              
              -
              
              
              
              167
 
 Notes:
 (1)  Represents
        the Company's net investment, including assets and accrued liabilities in
        the
        consolidated balance sheet for
 unconsolidated
        real estate
        entities.
  *-12-*
 *Table
            of Contents*
 
 
 LandDevelopmentApartment
              
              
              Commercial
              
              
              JointPartnerships
              
              
              Partnerships
              
              
              Venture
              
              
              Total(In
                  thousands)**Summary
                  of Cash Flows:****Cash
                  Flows from Operating Activities**Nine
                  Months Ended September 30, 2007
              
              $
              38
              
              
              $
              1,710
              
              
              $
              5,508
              
              
              $
              7,256Nine
                  Months Ended September 30, 2006
              
              
              93
              
              
              
              1,606
              
              
              
              3,333
              
              
              
              5,032Three
                  Months Ended September 30, 2007
              
              
              (12
              )
              
              
              865
              
              
              
              2,359
              
              
              
              3,212Three
                  Months Ended September 30, 2006
              
              
              16
              
              
              
              574
              
              
              
              3,201
              
              
              
              3,791**Company's
                  Share of Cash Flows from Operating Activities**Nine
                  Months Ended September 30, 2007
              
              
              -
              
              
              
              774
              
              
              
              2,754
              
              
              
              3,528Nine
                  Months Ended September 30, 2006
              
              
              1
              
              
              
              727
              
              
              
              1,666
              
              
              
              2,394Three
                  Months Ended September 30, 2007
              
              
              -
              
              
              
              392
              
              
              
              1,179
              
              
              
              1,571Three
                  Months Ended September 30, 2006
              
              
              -
              
              
              
              260
              
              
              
              1,600
              
              
              
              1,860**Operating
                  Cash Distributions**Nine
                  Months Ended September 30, 2007
              
              
              -
              
              
              
              1,236
              
              
              
              -
              
              
              
              1,236Nine
                  Months Ended September 30, 2006
              
              
              -
              
              
              
              1,185
              
              
              
              -
              
              
              
              1,185Three
                  Months Ended September 30, 2007
              
              
              -
              
              
              
              442
              
              
              
              -
              
              
              
              442Three
                  Months Ended September 30, 2006
              
              
              -
              
              
              
              438
              
              
              
              -
              
              
              
              438**Company's
                  Share of Operating Cash Distributions**Nine
                  Months Ended September 30, 2007
              
              
              -
              
              
              
              560
              
              
              
              -
              
              
              
              560Nine
                  Months Ended September 30, 2006
              
              
              -
              
              
              
              537
              
              
              
              -
              
              
              
              537Three
                  Months Ended September 30, 2007
              
              
              -
              
              
              
              200
              
              
              
              -
              
              
              
              200Three
                  Months Ended September 30, 2006
              
              
              -
              
              
              
              199
              
              
              
              -
              
              
              
              199
  *-13-*
 *Table
            of Contents*
 **(4)**
              **DEBT**
 
 The
        Company's outstanding debt is collateralized primarily by land, land
        improvements, receivables, investment properties, investments in partnerships,
        and rental properties.  The following table summarizes the
        indebtedness of the Company at September 30, 2007 and December 31, 2006 (in
        thousands):
 
 Maturity
              Interest
              Outstanding
                  as ofDates
              Rates
              **September
                  30,**
              December
                  31,From/To
              From/To
              **2007**
              2006**(Unaudited)**
              (Audited)**Recourse
                  Debt**Community
                  Development (a), (b), (c)
              08-31-08/03-01-22
              4%/8%
              **$           25,835**
              $             24,694Investment
                  Properties (d)
              PAID
              P+1.25%/6.98%
              **-**
              4,473General
                  obligations (e)
              07-29-07/01-01-12
              Non-interestbearing/8.10%
              **117**
              184**Total
                  Recourse Debt**
              
              
              **25,952**
              29,351**Non-Recourse
                  Debt**Community
                  Development (f)
              11-23-07
              Non-interest
                  bearing
              **500**
              500Investment
                  Properties (g)
              04-30-09/08-01-47
              4.95%/10%
              **279,296**
              270,220**Total
                  Non-Recourse Debt**
              
              
              **279,796**
              270,720**Total
                  debt**
              
              
              **$         305,748**
              $           300,071
 
 a)
              As
                  of September 30, 2007, $24,110,000 of the community development
                  recourse
                  debt relates to the general obligation bonds issued by the Charles
                  County
                  government as described in detail under the heading "Financial
                  Commitments" in Note 5.
 b)
              On
                  April 14, 2006, the Company closed a three year $14,000,000 revolving
                  acquisition and development loan (“the Revolver”) secured by a first lien
                  deed  of trust on property located in St. Charles,
                  MD.  The maximum amount of the loan at any one time is
                  $14,000,000.  The facility includes various sub-limits on a
                  revolving basis for amounts to finance apartment project acquisitions
                  and
                  land development in St. Charles.  The terms require certain
                  financial covenants to be calculated annually as of December 31,
                  including
                  a tangible net worth to senior debt ratio for ALD and a minimum
                  net worth
                  test for ACPT.  As of September 30, 2007, the Company was in
                  compliance with these financial covenants even though no amounts
                  were
                  outstanding on the Revolver.
 c)
              On
                  September 1, 2006, LDA secured a revolving line of credit facility
                  of
                  $15,000,000 to be utilized as follows: (i) to repay its outstanding
                  loan
                  of $800,000; and (ii) to fund development costs of a project in
                  which the
                  Company plans to develop a planned community in Canovanas, Puerto
                  Rico, to
                  fund acquisitions and/or investments mainly in estate ventures,
                  to fund
                  transaction costs and expenses, to fund future payments of interest
                  under
                  the line of credit and to fund any future working capital needs
                  of the
                  Company.  The line of credit bears interest at a fluctuating
                  rate equivalent to the LIBOR Rate plus 200 basis points (7.36%
                  at
                  September 30, 2007) and matures on August 31, 2008.  The
                  outstanding balance of this facility on September 30, 2007, was
                  $1,725,000.
 d)
              The
                  outstanding recourse debt within the investment properties was
                  comprised
                  of a loan borrowed to finance the acquisition of our properties
                  Village
                  Lake and Coachman's in January 2003, as well as a two-year, $3,000,000
                  recourse note that the Company obtained in June 2005.  Both of these
                  loans were repaid in full in January
                  2007.
 e)
              The
                  general recourse debt outstanding as of September 30, 2007, is
                  made up of
                  various capital leases outstanding within our U.S. and Puerto Rico
                  operations, as well as installment loans for vehicles and other
                  miscellaneous equipment.
 f)
              In
                  2005, the Company purchased 22 residential acres adjacent to the
                  Sheffield
                  Neighborhood for $1,000,000.  The Company funded half of the
                  purchase price with cash and signed a two-year note for $500,000
                  due on
                  November 23, 2007.  The Company plans to annex the land into the
                  St. Charles master plan community.
 g)
              The
                  non-recourse debt related to the investment properties is collateralized
                  by the multifamily rental properties and the office building in
                  Parque
                  Escorial.  As of September 30, 2007, approximately $73,338,000
                  of this debt is secured by the Federal Housing Administration ("FHA")
                  or
                  the Maryland Housing Fund.  The non-recourse debt related to the
                  investment properties also includes a construction loan for Sheffield
                  Greens Apartments LLC (Sheffield Greens).  As of September 30,
                  2007, the balance of the construction loan was $25,375,000.  The
                  construction loan was converted to a 40-year non-recourse mortgage
                  on
                  October 16, 2007.
 
 The
        Company’s loans contain various
        financial, cross collateral, cross default, technical and restrictive
        provisions.  As of September 30, 2007, the Company is in compliance
        with the financial covenants and the other provisions of its loan
        agreements.
 
 *-14-*
 *Table
            of Contents*
 **(5)**
              **COMMITMENTS
                  AND CONTINGENT LIABILITIES**
 
 *Financial
        Commitments*
 Pursuant
        to an agreement reached between ACPT and the Charles County Commissioners
        in
        2002, the Company agreed to accelerate the construction of two major roadway
        links to the Charles County (the "County") road system. As part of the
        agreement, the
        County agreed to issue general obligation public improvement bonds (the “Bonds”)
        to finance $20,000,000 of this construction guaranteed by letters of credit
        provided by Lennar as part of a residential lot sales contract for 1,950
        lots in
        Fairway Village.  The Bonds were issued in three installments with the
        final $6,000,000 installment issued in March 2006.  The Bonds bear interest
        rates ranging from 4% to 8%, for a blended lifetime rate for total Bonds
        issued
        to date of 5.1%, and call for semi-annual interest payments and annual principal
        payments and mature in fifteen years.  Under the terms of Bond
        repayment agreements between the Company and the County, the Company is
        obligated to pay interest and principal to the County based on the full amount
        of the Bonds; as such, the Company recorded the full amount of the debt and
        a
        receivable from the County representing the remaining Bond proceeds to be
        advanced to the Company as major infrastructure development within the project
        occurs.  As part of the agreement, the Company will pay the County a
        monthly payment equal to one-sixth of the semi-annual interest payments and
        one-twelfth of the annual principal payment. The County will also require
        ACPT
        to fund an escrow account from lot sales that will be used to repay these
        Bonds.
 In
          August
          2005, the Company signed a memorandum of understanding ("MOU") with the
          Charles
          County Commissioners regarding a land donation that is anticipated to house
          a
          planned minor league baseball stadium and entertainment complex. Under
          the terms
          of the MOU, the Company donated 42 acres of land in St. Charles to the
          County on
          December 31, 2005. The Company also agreed to expedite off-site utilities,
          storm-water management and road construction improvements that will serve
          the
          entertainment complex and future portions of St. Charles so that the
          improvements will be completed concurrently with the entertainment
          complex.  In return, the County agreed to issue $7,000,000 of general
          obligation bonds to finance the infrastructure improvements.  In March
          2006, the County issued $4,000,000 of bonds for this project and in March
          2007,
          the County issued an additional $3,000,000.  The funds for this
          project will be repaid by ACPT over a 15-year period. In addition, the
          County
          agreed to issue an additional 100 school allocations a year to St. Charles
          commencing with the issuance of bonds.
 During
        2006, the Company reached an agreement with Charles County whereby the Company
        receives interest payments on any undistributed bond proceeds held in escrow
        by
        the County.  The agreement covers the period from July 1, 2005 through
        the last draw made by the Company.  For the nine and three months
        ended September 30, 2007, the Company recognized $458,000 and $159,000 of
        interest income on these escrowed funds.
 **As
        of September 30,
        2007, ACPT is guarantor of $22,354,000 of surety bonds for the completion
        of
        land development projects with Charles County; substantially all are for
        the
        benefit of the Charles County Commissioners.
 
 *Consulting
        Agreement and Arrangement*
 ACPT
        entered into a consulting and
        retirement compensation agreement with Interstate General Company L.P.’s (“IGC”)
        founder and Chief Executive Officer, James J. Wilson, effective October 5,
        1998
        (the "Consulting Agreement").  IGC was the predecessor company to
        ACPT.  Under the terms of the Consulting Agreement, the Company will
        pay Mr. Wilson $200,000 per year through October 2008.
 
 *Guarantees*
 ACPT
        and
        its subsidiaries typically provide guarantees for another subsidiary's loans.
        In
        many cases more than one company guarantees the same debt. Since all of these
        companies are consolidated, the debt or other financial commitment made by
        the
        subsidiaries to third parties and guaranteed by ACPT, is included within
        ACPT's
        consolidated financial statements.  As of September 30, 2007, ACPT has
        guaranteed $24,110,000 of outstanding debt owed by its
        subsidiaries.  IGP has guaranteed $1,725,000 of its subsidiaries'
        outstanding debt.  The guarantees will remain in effect until the debt
        service is fully repaid by the respective borrowing subsidiary.  The
        terms of the debt service guarantees outstanding range from one to nine
        years.  In addition to debt service guarantees, both the Company and
        Lennar provided development completion guarantees related to the St. Charles
        Active Adult Community Joint Venture.  We do not expect any of these
        guarantees to impair the individual subsidiary or the Company's ability to
        conduct business or to pursue its future development plans.
 
 *Legal
        Matters*
 There
        have been no material changes to the legal proceedings previously disclosed
        in
        our Annual Report on Form 10-K for the year ended December 31,
        2006.
 The
        Company and/or its subsidiaries have been named as defendants, along with
        other
        companies, in tenant-related lawsuits. The Company carries liability insurance
        against certain types of claims that management believes meets industry
        standards.  To date, payments made to the plaintiffs of the settled
        cases were covered by our insurance policy.  The Company believes it has
        strong defenses to the pending unresolved claims, and intends to continue
        to
        defend itself vigorously in these matters.
 In
        the
        normal course of business, ACPT is involved in various pending or unasserted
        claims. In the opinion of management, these are not expected to have a material
        impact on the financial condition or future operations of ACPT.
 
 *-15-*
 *Table
            of Contents*
 **(6)**
              **RELATED
                  PARTY TRANSACTIONS**
 
 Certain
        officers and trustees of ACPT
        have ownership interests in various entities that conduct business with the
        Company.  The financial impact of the related party transactions on
        the accompanying consolidated financial statements is reflected below (in
        thousands):
  **CONSOLIDATED
                  STATEMENT OF INCOME:**Nine
                  Months Ended
              
              
              Three
                  Months EndedSeptember
                  30,
              
              
              September
                  30,**2007**
              
              
              2006
              
              
              **2007**
              
              
              2006**Management
                  and Other Fees (A)**Unconsolidated
                  subsidiaries with third party partners
              
              
              **$**
              **32**
              
              
              $
              32
              
              
              **$**
              **11**
              
              
              $
              13Affiliates
                  of J. Michael Wilson, CEO and Chairman
              
              
              ****
              **43**
              
              
              
              333
              
              
              ****
              **-**
              
              
              
              85**$**
              **75**
              
              
              $
              365
              
              
              **$**
              **11**
              
              
              $
              98**Rental
                  Property Revenues**
              (B)
              
              **$**
              **43**
              
              
              $
              5
              
              
              **$**
              **15**
              
              
              $
              5**Interest
                  and Other Income**Unconsolidated
                  real estate entities with third party partners
              
              
              **$**
              **6**
              
              
              $
              6
              
              
              **$**
              **2**
              
              
              $
              2**General
                  and Administrative Expense**Affiliates
                  of J. Michael Wilson, CEO and Chairman
              (C1)
              
              **$**
              **-**
              
              
              $
              19
              
              
              **$**
              **-**
              
              
              $
              -Reserve
                  additions and other write-offs-Unconsolidated
                  real estate entities with third party partners
              (A)
              
              ****
              **25**
              
              
              
              -
              
              
              ****
              **14**
              
              
              
              (9
              )Reimbursement
                  to IBC for ACPT's share of J. Michael Wilson's salary
              
              ****
              **293**
              
              
              
              281
              
              
              ****
              **98**
              
              
              
              93Reimbursement
                  of administrative costs-Affiliates
                  of J. Michael Wilson, CEO and Chairman
              
              
              ****
              **(18**
              **)**
              
              
              (16
              )
              
              ****
              **(5**
              **)**
              
              
              (11
              )Legal
                  fees paid to J. Michael Wilson's attorney
              (C4)
              
              ****
              **188**
              
              
              
              -
              
              
              ****
              **140**
              
              
              
              -Consulting
                  Fees -James
                  J. Wilson, IGC Chairman and Director
              (C2)
              
              ****
              **150**
              
              
              
              150
              
              
              ****
              **50**
              
              
              
              50Thomas
                  J. Shafer, Trustee
              (C3)
              
              ****
              **45**
              
              
              
              45
              
              
              ****
              **15**
              
              
              
              15**$**
              **683**
              
              
              $
              479
              
              
              **$**
              **312**
              
              
              $
              138**BALANCE
                  SHEET:**
              
              
              **Balance**
              
              
              Balance**September
                  30,**
              
              
              December
                  31,**2007**
              
              
              2006**Other
                  Assets**Receivables
                  - All unsecured and due on demandAffiliate
                  of J. Michael Wilson, CEO and Chairman
              
              
              **$**
              **13**
              
              
              $
              128
 
 (A)           **Management
        and Other Services**
 The
        Company provides management and other support services to its unconsolidated
        subsidiaries and other affiliated entities in the normal course of
        business.  The fees earned from these services are typically collected
        on a monthly basis, one month in arrears.  Receivables are unsecured
        and due on demand.  Certain partnerships experiencing cash shortfalls
        have not paid timely.  Generally, receivable balances of these
        partnerships are fully reserved, until satisfied or the prospect of
        collectibility improves. The collectibility of management fee receivables
        is
        evaluated quarterly.  Any increase or decrease in the reserves is
        reflected accordingly as additional bad debt expenses or recovery of such
        expenses.
 Chastleton
        Associates, LP, previously owned by an affiliate of J. Michael Wilson, was
        sold
        to a third party during April 2007, resulting in a termination of our management
        agreement.  The Company earned an agreed-upon management fee for
        administrative services through the end of the second quarter
        2006.  Management fees generated by this property accounted for less
        than 1% of the Company’s total revenue.
 At
        the
        end of February 2007, G.L. Limited Partnership, which was owned by affiliates
        of
        J. Michael Wilson, was sold to a third party.  Accordingly, we are no
        longer the management agent for this property effective March 1,
        2007.  Management fees generated by this property accounted for less
        than 1% of the Company’s total revenue.
 *-16-*
 *Table
            of Contents*
 (B)                      **Rental
        Property Revenue**
 On
        September 1, 2006, the Company, through one of its Puerto Rican subsidiaries,
        Escorial Office Building I, Inc. (“Landlord”), executed a lease with Caribe
        Waste Technologies, Inc. (“CWT”), a company owned by the J. Michael Wilson
        Family.  The lease provides for 1,842 square feet of office space to
        be leased by CWT for five years at $19.00 per rentable square
        foot.  The company provided CWT with an allowance of $9,000 in tenant
        improvements which are being amortized over the life of the lease.  In
        addition, CWT shall have the right to terminate this lease at any time after
        one
        year, provided it gives Landlord written notice six (6) months prior to
        termination.   The lease agreement is unconditionally guaranteed
        by Interstate Business Corporation (“IBC”), a company owned by the J. Michael
        Wilson Family.
 
 (C)           **Other**
 Other
        transactions with related parties
        are as follows:
 1)
              In
                  2005, the Company rented executive office space and other property
                  from an
                  affiliate in the United States pursuant to leases that were assigned
                  to
                  the new owners when the property was sold in January 2006.  In
                  management’s opinion, all leases with affiliated persons were on terms at
                  least as favorable as these generally available from unaffiliated
                  persons
                  for comparable property.
 2)
              Represents
                  fees paid to James J. Wilson pursuant to a consulting and retirement
                  agreement.  At Mr. Wilson's request, payments are made to
                  Interstate Waste Technologies, Inc.
                  (“IWT”).
 3)
              Represents
                  fees paid to Thomas J. Shafer, a trustee, pursuant to a consulting
                  agreement.
 4)
              The
                  Independent Trustees concluded that certain legal fees and expenses
                  incurred by J. Michael Wilson in connection with the preliminary
                  work
                  being done in seeking a strategic partner to recapitalize the Company
                  are
                  in the best interest of the Company and the minority
                  shareholders.  Accordingly, the Independent Trustees authorized
                  the Company to fund up to $225,000 of such costs, $188,000 of which
                  have
                  been incurred as of September 30,
                  2007.
 
 **Related
        Party Acquisitions**
 
 *El
        Monte*
 On
        April
        30, 2004, the Company purchased a 50% limited partnership interest in El
        Monte
        Properties S.E. ("El Monte") from Insular Properties Limited Partnership
        ("Insular") for $1,462,500.  Insular is owned by the J. Michael Wilson
        Family.  Per the terms of the agreement, the Company was responsible
        to fund $400,000 of capital improvements and lease stabilization costs, and
        had
        a priority on cash distributions up to its advances plus accrued interest
        at 8%,
        investment and a 13% cumulative preferred return on its
        investment.  The purchase price was based on a third party appraisal
        of $16,500,000 dated April 22, 2003. The Company's limited partnership
        investment was accounted for under the equity method of accounting.
 In
        December 2004, a third party buyer purchased El Monte for
        $20,000,000:  $17,000,000 in cash and $3,000,000 in two notes of
        $1,500,000 each that bear an interest rate of prime plus 2%, with a ceiling
        of
        9%, and mature on December 3, 2009.  The net cash proceeds from the
        sale of the real estate were distributed to the partners.  As a
        result, the Company received $2,500,000 in cash and recognized $986,000 of
        income in 2004.  El Monte distributed a $1,500,000 note to the Company
        in January 2005.  On January 24, 2007, the Company received $1,707,000
        as payment in full of the principal balance and all accrued interest related
        to
        the El Monte note receivable.  Accordingly, the Company recorded
        $1,500,000 as equity in earnings and $207,000 as interest income.  As
        previously noted, the Company deferred revenue recognition on this note until
        the cash was received.
 *-17-*
 *Table
            of Contents*
 **(7)**
              **INCOME
                  TAXES**
 
 We
        adopted the provisions of FIN 48 on January 1, 2007.  As a result of
        the implementation of FIN 48, we recorded a $1,458,000 increase in the net
        liability for unrecognized tax positions, which was recorded as a cumulative
        effect of a change in accounting principle, reducing the opening balance
        of
        retained earnings on January 1, 2007.  The total amount of
        unrecognized tax benefits as of January 1, 2007, was
        $13,544,000.  Included in the balance at January 1, 2007, were
        $2,605,000 of tax positions that, if recognized, would impact the effective
        tax
        rate.
 In
        accordance with our accounting policy, we recognize accrued interest related
        to
        uncertain tax positions as a component of interest expense and penalties
        as a
        component of tax expense on the Consolidated Statements of
        Income.  This policy did not change as a result of the adoption of FIN
        48.  Our Consolidated Statements of Income for the nine and three
        months ended September 30, 2007, and our Consolidated Balance Sheet as of
        that
        date included interest of $855,000,  $304,000 and $2,485,000,
        respectively and penalties of $143,000, $71,000 and $740,000,
        respectively.
 The
        Company currently does not have any tax returns under audit by the United
        States
        Internal Revenue Service or the Puerto Rico Treasury
        Department.  However, the tax returns filed in the Unites States for
        the years ended December 31, 2003 through 2006 remain subject to
        examination.  For Puerto Rico, the tax returns for the years ended
        December 31, 2003 through 2006 remain subject to examination.  On
        August 31, 2007, the Company reached a closing agreement with the Puerto
        Rico
        Treasury Department whereby the company paid $252,000 related to the correction
        of a special partnership income tax return.  The Company does not
        anticipate any other payments related to settlement of any tax
        examinations.  Additionally, as certain United States and Puerto Rico
        income tax returns will no longer be subject to examination, and as a result,
        there is a reasonable possibility that the amount of unrecognized tax benefits
        will decrease by $27,000 when the related statutes of limitations
        expire.
  **(8)**
                **SEGMENT
                    INFORMATION**
 
 ACPT
          has
          two reportable segments: U.S. operations and Puerto Rico operations. The
          Company's chief decision-makers allocate resources and evaluate the Company's
          performance based on these two segments. The U.S. segment is comprised
          of
          different components grouped by product type or service, to
          include:  investments in rental properties, community development and
          property management services. The Puerto Rico segment entails the following
          components: investment in rental properties, community development, homebuilding
          and property management services.  The U.S. segment bears
          substantially all of the corporate costs associated with being a public
          company
          and other corporate governance.  The accounting policies of the
          segments are the same as those described in the summary of significant
          accounting policies.
 
 *Customer
          Dependence*
 Residential
          land sales to Lennar within our U.S. segment were $5,131,000 for the nine
          months
          ended September 30, 2007, which represents 14% of the U.S. segment’s revenue and
          8% of our total year-to-date consolidated revenue.  No customers
          accounted for more than 10% of our consolidated revenue for the nine months
          ended September 30, 2007.
 In
            March
            2004, the Company executed an agreement with Lennar Corporation to sell
            1,950
            residential lots (1,359 single family lots and 591 town home lots) in
            Fairway
            Village in St. Charles, Maryland. The agreement requires the homebuilder
            to
            provide $20,000,000 in letters of credit to secure the purchase of the
            lots and
            purchase 200 residential lots per year, provided that they are developed
            and
            available for delivery as defined by the development
            agreement.  Although Lennar is contractually obligated to take 200
            lots per year, the market is not sufficient to absorb this sales
            pace.  Accordingly, Lennar’s management requested a reduction of the
            200 lot requirement and lot price.  The Company is in active
            negotiations with Lennar to reach agreed upon terms that are mutually
            beneficial
            to both parties.
  *-18-*
 *Table
              of
              Contents*
 The
        following presents the segment information for the nine months ended September
        30, 2007 and 2006 (in thousands):
 
 United
              
              
              Puerto
              
              
              Inter-States
              
              
              Rico
              
              
              Segment
              
              
              Total**Nine
                  Months Ended September 30, 2007 (Unaudited):**
              
              $
              
              
              $
              
              
              $
              
              
              $Rental
                  property revenues
              
              
              28,529
              
              
              
              16,720
              
              
              
              -
              
              
              
              45,249Rental
                  property operating expenses
              
              
              14,376
              
              
              
              8,543
              
              
              
              (18
              )
              
              
              22,901Land
                  sales revenue
              
              
              8,032
              
              
              
              -
              
              
              
              -
              
              
              
              8,032Cost
                  of land sales
              
              
              5,930
              
              
              
              -
              
              
              
              -
              
              
              
              5,930Home
                  sales revenue
              
              
              -
              
              
              
              6,113
              
              
              
              -
              
              
              
              6,113Cost
                  of home sales
              
              
              -
              
              
              
              4,399
              
              
              
              -
              
              
              
              4,399Management
                  and other fees
              
              
              299
              
              
              
              479
              
              
              
              (22
              )
              
              
              756General,
                  administrative, selling and marketing expense
              
              
              6,355
              
              
              
              2,249
              
              
              
              (4
              )
              
              
              8,600Depreciation
                  and amortization
              
              
              4,252
              
              
              
              2,757
              
              
              
              -
              
              
              
              7,009Operating
                  income
              
              
              5,947
              
              
              
              5,364
              
              
              
              -
              
              
              
              11,311Interest
                  income
              
              
              843
              
              
              
              228
              
              
              
              (80
              )
              
              
              991Equity
                  in earnings from unconsolidated entities
              
              
              (1
              )
              
              
              2,021
              
              
              
              -
              
              
              
              2,020Interest
                  expense
              
              
              9,436
              
              
              
              4,681
              
              
              
              (80
              )
              
              
              14,037Minority
                  interest in consolidated entities
              
              
              332
              
              
              
              1,418
              
              
              
              -
              
              
              
              1,750Income
                  before provision/(benefit) for income taxes
              
              
              (2,975
              )
              
              
              1,697
              
              
              
              -
              
              
              
              (1,278
              )Income
                  tax provision/(benefit)
              
              
              (829
              )
              
              
              810
              
              
              
              -
              
              
              
              (19
              )**Net
                  (loss) income**
              
              ****
              **(2,146**
              **)**
              
              ****
              **887**
              
              
              ****
              **-**
              
              
              ****
              **(1,259**
              **)**Gross
                  profit on land sale
              
              
              2,102
              
              
              
              -
              
              
              
              -
              
              
              
              2,102Gross
                  profit on home sales
              
              
              -
              
              
              
              1,714
              
              
              
              -
              
              
              
              1,714**Total
                  assets**
              
              ****
              **260,772**
              
              
              ****
              **101,056**
              
              
              ****
              **(1,624**
              **)**
              
              ****
              **360,204**Additions
                  to long lived assets
              
              
              6,226
              
              
              
              524
              
              
              
              -
              
              
              
              6,750**Nine
                  Months Ended September 30, 2006 (Unaudited):**
              
              
              $
              
              
              
              $
              
              
              
              $
              
              
              
              $Rental
                  property revenues
              
              
              23,889
              
              
              
              16,057
              
              
              
              -
              
              
              
              39,946Rental
                  property operating expenses
              
              
              11,591
              
              
              
              8,187
              
              
              
              (15
              )
              
              
              19,763Land
                  sales revenue
              
              
              11,317
              
              
              
              -
              
              
              
              -
              
              
              
              11,317Cost
                  of land sales
              
              
              6,156
              
              
              
              -
              
              
              
              -
              
              
              
              6,156Home
                  sales revenue
              
              
              -
              
              
              
              16,343
              
              
              
              -
              
              
              
              16,343Cost
                  of home sales
              
              
              -
              
              
              
              12,310
              
              
              
              -
              
              
              
              12,310Management
                  and other fees
              
              
              461
              
              
              
              443
              
              
              
              (19
              )
              
              
              885General,
                  administrative, selling and marketing expense
              
              
              4,648
              
              
              
              2,059
              
              
              
              (4
              )
              
              
              6,703Depreciation
                  and amortization
              
              
              3,532
              
              
              
              2,707
              
              
              
              -
              
              
              
              6,239Operating
                  income
              
              
              9,740
              
              
              
              7,580
              
              
              
              -
              
              
              
              17,320Interest
                  income
              
              
              576
              
              
              
              95
              
              
              
              (40
              )
              
              
              631Equity
                  in earnings from unconsolidated entities
              
              
              (1
              )
              
              
              511
              
              
              
              -
              
              
              
              510Interest
                  expense
              
              
              6,604
              
              
              
              4,351
              
              
              
              (40
              )
              
              
              10,915Minority
                  interest in consolidated entities
              
              
              610
              
              
              
              2,387
              
              
              
              -
              
              
              
              2,997Income
                  before provision/(benefit) for income taxes
              
              
              3,105
              
              
              
              1,651
              
              
              
              -
              
              
              
              4,756Income
                  tax provision/(benefit)
              
              
              1,284
              
              
              
              470
              
              
              
              -
              
              
              
              1,754**Net
                  income**
              
              ****
              **1,821**
              
              
              ****
              **1,181**
              
              
              ****
              **-**
              
              
              ****
              **3,002**Gross
                  profit on land sale
              
              
              5,161
              
              
              
              -
              
              
              
              -
              
              
              
              5,161Gross
                  profit on home sales
              
              
              -
              
              
              
              4,033
              
              
              
              -
              
              
              
              4,033**Total
                  assets**
              
              ****
              **220,662**
              
              
              ****
              **106,489**
              
              
              ****
              **-**
              
              
              ****
              **327,151**Additions
                  to long lived assets
              
              
              33,801
              
              
              
              1,192
              
              
              
              -
              
              
              
              34,993
 
 *-19-*
 *Table
            of
            Contents*
  The
        following presents the segment information for the three months ended September
        30, 2007 and 2006 (in thousands):
 
 United
              
              
              Puerto
              
              
              Inter-States
              
              
              Rico
              
              
              Segment
              
              
              Total**Three
                  Months Ended September 30, 2007 (Unaudited):**
              
              $
              
              
              $
              
              
              $
              
              
              $Rental
                  property revenues
              
              
              9,823
              
              
              
              5,594
              
              
              
              -
              
              
              
              15,417Rental
                  property operating expenses
              
              
              4,887
              
              
              
              2,905
              
              
              
              (5
              )
              
              
              7,787Land
                  sales revenue
              
              
              2,063
              
              
              
              -
              
              
              
              -
              
              
              
              2,063Cost
                  of land sales
              
              
              1,574
              
              
              
              -
              
              
              
              -
              
              
              
              1,574Home
                  sales revenue
              
              
              -
              
              
              
              899
              
              
              
              -
              
              
              
              899Cost
                  of home sales
              
              
              -
              
              
              
              583
              
              
              
              -
              
              
              
              583Management
                  and other fees
              
              
              91
              
              
              
              166
              
              
              
              (7
              )
              
              
              250General,
                  administrative, selling and marketing expense
              
              
              2,432
              
              
              
              801
              
              
              
              (1
              )
              
              
              3,232Depreciation
                  and amortization
              
              
              1,507
              
              
              
              921
              
              
              
              -
              
              
              
              2,428Operating
                  income
              
              
              1,577
              
              
              
              1,449
              
              
              
              (1
              )
              
              
              3,025Interest
                  income
              
              
              252
              
              
              
              2
              
              
              
              (25
              )
              
              
              229Equity
                  in earnings from unconsolidated entities
              
              
              -
              
              
              
              175
              
              
              
              -
              
              
              
              175Interest
                  expense
              
              
              3,210
              
              
              
              1,515
              
              
              
              (25
              )
              
              
              4,700Minority
                  interest in consolidated entities
              
              
              159
              
              
              
              34
              
              
              
              -
              
              
              
              193Income
                  before provision/(benefit) for income taxes
              
              
              (1,539
              )
              
              
              134
              
              
              
              -
              
              
              
              (1,405
              )Income
                  tax provision/(benefit)
              
              
              (348
              )
              
              
              41
              
              
              
              -
              
              
              
              (307
              )**Net
                  (loss) income**
              
              ****
              **(1,191**
              **)**
              
              ****
              **93**
              
              
              ****
              **-**
              
              
              ****
              **(1,098**
              **)**Gross
                  profit on land sale
              
              
              489
              
              
              
              -
              
              
              
              -
              
              
              
              489Gross
                  profit on home sales
              
              
              -
              
              
              
              316
              
              
              
              -
              
              
              
              316**Total
                  assets**
              
              ****
              **260,772**
              
              
              ****
              **101,056**
              
              
              ****
              **(1,624**
              **)**
              
              ****
              **360,204**Additions
                  to long lived assets
              
              
              1,707
              
              
              
              102
              
              
              
              -
              
              
              
              1,809**Three
                  Months Ended September 30, 2006 (Unaudited):**
              
              
              $
              
              
              
              $
              
              
              
              $
              
              
              
              $Rental
                  property revenues
              
              
              8,283
              
              
              
              5,525
              
              
              
              -
              
              
              
              13,808Rental
                  property operating expenses
              
              
              4,219
              
              
              
              2,743
              
              
              
              (15
              )
              
              
              6,947Land
                  sales revenue
              
              
              4,691
              
              
              
              -
              
              
              
              -
              
              
              
              4,691Cost
                  of land sales
              
              
              2,490
              
              
              
              -
              
              
              
              -
              
              
              
              2,490Home
                  sales revenue
              
              
              -
              
              
              
              5,084
              
              
              
              -
              
              
              
              5,084Cost
                  of home sales
              
              
              -
              
              
              
              3,789
              
              
              
              -
              
              
              
              3,789Management
                  and other fees
              
              
              192
              
              
              
              147
              
              
              
              (19
              )
              
              
              320General,
                  administrative, selling and marketing expense
              
              
              1,469
              
              
              
              704
              
              
              
              (4
              )
              
              
              2,169Depreciation
                  and amortization
              
              
              1,257
              
              
              
              908
              
              
              
              -
              
              
              
              2,165Operating
                  income
              
              
              3,731
              
              
              
              2,612
              
              
              
              -
              
              
              
              6,343Interest
                  income
              
              
              517
              
              
              
              35
              
              
              
              (22
              )
              
              
              530Equity
                  in earnings from unconsolidated entities
              
              
              (1
              )
              
              
              168
              
              
              
              -
              
              
              
              167Interest
                  expense
              
              
              2,556
              
              
              
              1,181
              
              
              
              (22
              )
              
              
              3,715Minority
                  interest in consolidated entities
              
              
              298
              
              
              
              33
              
              
              
              -
              
              
              
              331Income
                  before provision/(benefit) for income taxes
              
              
              1,395
              
              
              
              1,689
              
              
              
              -
              
              
              
              3,084Income
                  tax provision/(benefit)
              
              
              555
              
              
              
              485
              
              
              
              -
              
              
              
              1,040**Net
                  income**
              
              ****
              **840**
              
              
              ****
              **1,204**
              
              
              ****
              **-**
              
              
              ****
              **2,044**Gross
                  profit on land sale
              
              
              2,201
              
              
              
              -
              
              
              
              -
              
              
              
              2,201Gross
                  profit on home sales
              
              
              -
              
              
              
              1,295
              
              
              
              -
              
              
              
              1,295**Total
                  assets**
              
              ****
              **220,662**
              
              
              ****
              **106,489**
              
              
              ****
              **-**
              
              
              ****
              **327,151**Additions
                  to long lived assets
              
              
              9,593
              
              
              
              284
              
              
              
              -
              
              
              
              9,877
  *-20-*
 *Table
            of Contents*
 **ITEM
                  2.**
              **MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF
                  OPERATIONS**
 
 **FORWARD-LOOKING
        STATEMENTS**
 The
        following discussion should be read in conjunction with the consolidated
        financial statements and notes thereto appearing in this report. Historical
        results set forth in Management's Discussion and Analysis of Financial Condition
        and Results of Operation and the Financial Statements should not be taken
        as
        indicative of our future operations.
 This
        quarterly report on Form 10-Q
        contains forward-looking statements within the meaning of the Private Securities
        Litigation Reform Act of 1995. These include statements about our business
        outlook, market and economic conditions, strategies, future plans, anticipated
        costs and expenses, capital spending, and any other statements that are not
        historical. The accuracy of these statements is subject to a number of risks,
        uncertainties, and other factors that may cause our actual results, performance
        or achievements of the Company to differ materially from any future results,
        performance or achievements expressed or implied by such forward-looking
        statements.   Those items are discussed under "Risk Factors" in
        Part I, Item 1A to the Form 10-K for the year ended December 31,
        2006.
  **EXECUTIVE
          SUMMARY OF RESULTS**
 Consolidated
          operating revenues are derived primarily from rental revenue, community
          development land sales and home sales.  For the nine and three months
          ended September 30, 2007, our consolidated rental revenues have increased
          13%
          and 12%, respectively, over the comparable periods of 2006.  The
          increase was primarily attributable to acquisition and construction of
          new units
          in our United States segment as well as overall rent increases at comparable
          properties in both the United States and Puerto Rico segments.
 Community
          development land sales for the nine and three months ended September 30,
          2007
          decreased 29% and 56%, respectively, from the 2006 periods.  Land
          sales revenue in any one period is affected by the mix of lot sizes and,
          to a
          greater extent, the mix between residential and commercial
          sales.  Land sales, currently sourced from the United States segment,
          result in large part from a sales agreement with Lennar
          Corporation.  In March 2004, the Company executed an agreement with
          Lennar Corporation to sell 1,950 residential lots (1,359 single family
          lots and
          591 town home lots) in Fairway Village in St. Charles, Maryland. The agreement
          requires the homebuilder to provide $20,000,000 in letters of credit to
          secure
          the purchase of the lots and purchase 200 residential lots per year, provided
          that they are developed and available for delivery as defined by the development
          agreement.  Although Lennar is contractually obligated to take 200
          lots per year, the market is not sufficient to absorb this sales
          pace.  Accordingly, Lennar’s management requested a reduction of the
          200 lot requirement and lot price.  The Company is in active
          negotiations with Lennar to reach agreed upon terms that are mutually beneficial
          to both parties.
 Home
          sales for the nine and three months ended September 30, 2007 decreased
          63% and
          82%, respectively, from the 2006 periods.  Home sales, currently
          sourced from the Puerto Rico segment, are impacted by the local real estate
          market.  The Puerto Rico real estate market has slowed
          substantially.  The reduction of new contracts and the reduced pace of
          sales has impacted the Company somewhat, but not to the same extent as
          the
          overall Puerto Rico market decline.  The Company settled 23 and 3
          units for the nine and three months ended September 30, 2007,
          respectively.  As of September 30, 2007, 27 completed units remain
          within inventory, of which we currently have 5 units under
          contract.  At the current sales pace, the Company anticipates that the
          remaining units in Torres will continue into 2008.  We believe that
          our current pricing remains competitive.
 On
          a
          consolidated basis, the Company reported a net loss of $1,259,000 for the
          nine
          months ended September 30, 2007.  The net loss includes a $19,000
          benefit for income taxes, resulting in a consolidated effective tax rate
          of
          approximately 1%.  The consolidated effective rate was impacted by
          accrued penalties on uncertain tax positions and certain nondeductible
          permanent
          items in the United States segment and double taxation on a certain
          non-recurring gain for our Puerto Rico segment.  For further
          discussion of these items, see the provision for income taxes discussion
          within
          the United States and Puerto Rico segment discussion.
 Please
            refer to the Results of Operations section of Management’s Discussion and
            Analysis for additional details surrounding the results of each of our
            operating
            segments.
  **NEW
        ACCOUNTING PRONOUNCEMENTS AND CHANGE IN BASIS OF
        PRESENTATION**
 In
        July
        2006, the FASB issued FASB Interpretation No. 48, “*Accounting for
        Uncertainty in Income Taxes*” (“FIN 48”). FIN 48 is an interpretation of
        FASB Statement No. 109, “*Accounting for Income Taxes*,” and it
        seeks to reduce the diversity in practice associated with certain aspects
        of
        measurement and recognition in accounting for income taxes. In addition,
        FIN 48
        requires expanded disclosure with respect to the uncertainty in income
        taxes.  We adopted the provisions of FIN 48 on January 1,
        2007.  As a result of the implementation of FIN 48, we recorded a
        $1,458,000 increase in the net liability for unrecognized tax positions,
        which
        was recorded as a cumulative effect of a change in accounting principle,
        reducing the opening balance of retained earnings on January 1,
        2007.  See Note 7 to the consolidated financial statements for further
        discussion.
 *-21-*
 *Table
            of Contents*
 **CRITICAL
        ACCOUNTING POLICIES**
 The
        preparation of financial statements
        in conformity with accounting principles generally accepted in the United
        States, which we refer to as GAAP, requires management to use judgment in
        the
        application of accounting policies, including making estimates and assumptions.
        These judgments affect the reported amounts of assets and liabilities and
        disclosure of contingent assets and liabilities at the dates of the financial
        statements and the reported amounts of revenue and expenses during the reporting
        periods. If our judgment or interpretation of the facts and circumstances
        relating to various transactions had been different, it is possible that
        different accounting policies would have been applied resulting in a different
        presentation of our financial statements.
 Refer
        to
        the Company’s 2006 Annual Report on Form 10-K for a discussion of critical
        accounting policies, which include sales, profit recognition and cost
        capitalization, investment in unconsolidated real estate entities, impairment
        of
        long-lived assets, depreciation of investments in real estate, income taxes
        and
        contingencies.  For the nine months ended September 30, 2007, there
        were no material changes to our policies except as noted above related to
        the
        implementation of FIN 48.
 
 **RESULTS
        OF OPERATIONS**
 The
        following discussion is based on the consolidated financial statements of
        the
        Company. It compares the results of operations of the Company for the nine
        and
        three months ended September 30, 2007 (unaudited), with the results of
        operations of the Company for the nine and three months ended September 30,
        2006
        (unaudited).  Historically, the Company’s financial results have been
        significantly affected by the cyclical nature of the real estate
        industry.  Accordingly, the Company’s historical financial statements
        may not be indicative of future results. This discussion should be read in
        conjunction with the accompanying consolidated financial statements and notes
        included elsewhere in this report and within our Annual Report on Form 10-K
        for
        the year ended December 31, 2006.
 
 **Results
        of Operations - U.S. Operations:**
 For
        the
        nine and three months ended September 30, 2007, our U.S. segment generated
        $5,947,000 and $1,577,000 of operating income compared to $9,740,000 and
        $3,731,000 of operating income generated by the segment for the same periods
        in
        2006, respectively. Additional information and analysis of the U.S. operations
        can be found below.
 
 **Rental
        Property Revenues and Operating Expenses - U.S.
        Operations:**
 As
        of
        September 30, 2007, nineteen U.S.-based apartment properties, representing
        3,256
        units, in which we hold an ownership interest qualified for the consolidation
        method of accounting.  The rules of consolidation require that we
        include within our financial statements the consolidated apartment properties'
        total revenue and operating expenses. The portions of net income attributable
        to
        the interests of the outside owners of these properties and any losses and
        distributions in excess of the minority owners’ basis in those properties are
        reflected as minority interest expense.
 As
        of
        September 30, 2007, thirteen of the consolidated properties were market rent
        properties, representing 1,856 units, allowing us to determine the appropriate
        rental rates.  Even though we can determine the rents, a portion of
        our units at some of our market rent properties must be leased to tenants
        with
        low to moderate income. HUD subsidizes three of the properties representing
        836
        units and the three remaining properties are a mix of 137 subsidized units
        and
        427 market rent units. HUD dictates the rents of the subsidized
        units.
 
 *Apartment
        Construction and Acquisitions*
 On
        January 31, 2007, we completed the newest addition to our market rate
        multifamily apartment portfolio located in St. Charles' Fairway Village,
        the
        Sheffield Greens Apartments.  The 252-unit apartment project consists
        of nine, 3-story buildings and offers 1 and 2 bedroom units ranging in size
        from
        800 to 1,400 square feet.
 On
        April
        28, 2006, the Company acquired two apartment properties, Milford Station
        I LLC
        and Milford Station II LLC, in Baltimore, Maryland containing a combined
        total
        of 250 units for approximately $14,300,000.  All of the acquired
        properties are operated as market rate properties.
 
 *Nine
        months ended*
 For
        the
        nine months ended September 30, 2007, rental property revenues increased
        $4,640,000 or 19% to $28,529,000 compared to $23,889,000 for the same period
        in
        2006.  The increase in rental revenues was primarily the result of
        additional revenues for Sheffield Greens Apartments, Milford Station I and
        Milford Station II which accounted for approximately $3,548,000 of the
        difference.  The increase was also attributable to an overall 4%
        increase in rents between periods.
 Rental
        property operating expenses increased $2,785,000 or 24% for the nine months
        ended September 30, 2007 to $14,376,000 compared to $11,591,000 for the same
        period of 2006.  The overall increase in rental property operating
        expenses was primarily the result of additional expenses for Sheffield Greens
        Apartments, Milford Station I and Milford Station II, which accounted for
        approximately $1,667,000 of the difference.  The remainder of the
        increase resulted from overall inflationary adjustments as well as specific
        above inflation increases noted in advertising, security, office and maintenance
        salaries, utilities, maintenance, rehabilitation, real estate taxes and
        concessions awarded to residents.  We are currently working to reduce
        all our controllable rental property operating expenses within our US
        portfolio.  Specific emphasis includes reducing advertising and
        concessions expenses now that Sheffield Greens is leased and occupancy rates
        at
        other competing properties are increasing as well as pursuing measures to
        reduce
        security expenditures.
 *-22-*
 *Table
            of Contents*
 *Three
        months ended*
 For
        the
        three months ended September 30, 2007, rental property revenues increased
        $1,540,000 or 19% to $9,823,000 compared to $8,283,000 for the same period
        in
        2006.  The increase in rental revenues was primarily the result of
        additional revenues for Sheffield Greens Apartments, which accounted for
        approximately $1,109,000 of the difference.  The increase was also
        attributable to an overall 5% increase in rents between periods.
 Rental
        property operating expenses increased $668,000 or 16% for the third quarter
        of
        2007 to $4,887,000 compared to $4,219,000 for the third quarter of
        2006.  The overall increase in rental property operating expenses was
        primarily the result of additional expenses for Sheffield Greens Apartments,
        which accounted for approximately $454,000 of the difference.  The
        remainder of the increase resulted from overall inflationary adjustments
        as well
        as specific above inflation increases in office expenses, security, maintenance
        supplies, real estate taxes and insurance.  These increases were
        offset in part by expense reduction efforts being implemented.
  **Community
          Development – U.S. Operations:**
 Land
          sales revenue in any one period is affected by the mix of lot sizes and,
          to a
          greater extent, the mix between residential and commercial sales. In March
          2004,
          the Company executed an agreement with Lennar Corporation to sell 1,950
          residential lots (1,359 single family lots and 591 town home lots) in Fairway
          Village in St. Charles, Maryland. The agreement requires the homebuilder
          to
          provide $20,000,000 in letters of credit to secure the purchase of the
          lots and
          purchase 200 residential lots per year, provided that they are developed
          and
          available for delivery as defined by the development
          agreement.  Although Lennar is contractually obligated to take 200
          lots per year, the market is not sufficient to absorb this sales
          pace.  Accordingly, Lennar’s management requested a reduction of the
          200 lot requirement and lot price.  The Company is in active
          negotiations with Lennar to reach agreed upon terms that are mutually beneficial
          to both parties.
 Sales
          are
          closed on a lot by lot basis at the time when the builder purchases the
          lot. The
          ultimate selling price per lot sold to Lennar may exceed the amount recognized
          at closing since the final lot price is equal to a percentage of the base
          price
          of the home sold on the lot. Additional revenue exceeding the price per
          lot
          established at takedown will be recognized upon Lennar’s settlement with the
          respective homebuyers. Residential lots can vary in size and location resulting
          in pricing differences. Gross margins of residential lots are based on
          the
          relative sales values estimated within any given village in St.
          Charles.  Current real estate market conditions have resulted in price
          reductions for our residential lots and, accordingly, adversely impacted
          our
          gross margins. Commercial land is typically sold by contract that allows
          for a
          study period and delayed settlement until the purchaser obtains the necessary
          permits for development. The sales prices and gross margins for commercial
          parcels vary significantly depending on the location, size, extent of
          development and ultimate use. Commercial land sales are generally
          cyclical.
 Community
          development land sales revenue decreased $3,285,000 or 29% for the nine
          months
          ended September 30, 2007, to $8,032,000 as compared to $11,317,000 for
          the nine
          months ended September 30, 2006.  The decline in the housing market
          negatively impacted the number of lots sold in the nine months of
          2007.  The impact of this reduction was offset in part by an increase
          in the amount of commercial sales for the period.
 Community
          development land sales revenue decreased $2,628,000 or 56% for the three
          months
          ended September 30, 2007, to $2,063,000 as compared to $4,691,000 for the
          three
          months ended September 30, 2006.  The overall decrease for the three
          months ended September 30, 2007 as compared to the three months ended September
          30, 2006 resulted from a decrease in the number of residential lots delivered
          as
          well as the impact of Lennar’s reduced home sales on the true-up payments
          received, offset in part by increased commercial land sales for the
          period.  Further discussion of the components of this variance is as
          follows:
 
 *Residential
          Land Sales*
 For
          the nine
          months ended September 30, 2007, we recognized $2,255,000 related to the
          delivery of 27 residential lots to Lennar, of which 24 were townhome lots
          and 3
          were single-family lots, as compared to $6,583,000 related to 42 single-family
          lots and 14 townhome lots delivered in the nine months ended September
          30,
          2006.  For the nine months ended September 30, 2007, we delivered 24
          townhome lots to Lennar, recognizing as revenue an average price of $79,226
          per
          lot, which includes the initial recognition of $85,000 per lot for 14 lots
          and
          $65,000 per lot for 10 lots plus water and sewer fees, road fees and other
          off-site fees.  The Company also delivered 3 single family lots to
          Lennar, recognizing as revenue an average price of $117,860 per lot, which
          includes the initial recognition of $115,300 per lot plus water and sewer
          fees,
          road fees and other off-site fees.  For the nine months ended
          September 30, 2006, we delivered 42 single family lots to Lennar, recognizing
          as
          revenue an average price of $127,560 per lot, which includes the initial
          recognition of $125,000 per lot plus water and sewer fees, road fees and
          other
          off-site fees, as well as 14 townhome lots in 2006 at the same initial
          price as
          currently being recognized.
 *-23-*
 *Table
            of Contents*
 As
          of
          September 30, 2007, 1,616 lots remained under contract to Lennar of which
          154
          single family lots and 29 townhome lots were developed and ready for
          delivery.
 In
          addition to initial lot settlement, during the nine months ended September
          30,
          2007 and 2006, we also recognized $1,813,000 and $2,594,000, respectively,
          of
          additional revenue for lots that were previously sold to Lennar in 2006
          and
          2005.  During the third quarter of 2007 and 2006, we recognized
          $727,000 and $887,000, respectively, of additional revenue for lots previously
          sold to Lennar.  This additional revenue is based on the final
          settlement price of the homes as provided by our agreement with
          Lennar.
 
 *Commercial
          Land Sales*
 For
          the
          nine months ended September 30, 2007, we sold 6.81 commercial acres in
          St.
          Charles for $2,717,000 as compared to 10.46 acres for $1,602,000 for the
          nine
          months ended September 30, 2006.  For the three months ended September
          30, 2007, we sold 1.03 acres of commercial land for $180,000 and recognized
          $61,000 of revenue related to work completed on incomplete parcels previously
          sold.  No commercial contracts were closed in the third quarter of
          2006.  As of September 30, 2007, our commercial sales backlog
          contained 94.19 acres under contract for a total of $16,761,000.
 
 *St.
          Charles Active Adult Community, LLC – Land Joint Venture*
 In
          September 2004, the Company entered into a joint venture agreement with
          Lennar
          Corporation for the development of a 352-unit, active adult community located
          in
          St. Charles, Maryland.  The Company manages the project’s development
          for a market rate fee pursuant to a management agreement.  In
          September 2004, the Company transferred land to the joint venture in exchange
          for a 50% ownership interest and $4,277,000 in cash.  The Company’s
          investment in the joint venture was recorded at 50% of the historical cost
          basis
          of the land with the other 50% recorded within our deferred charges and
          other
          assets.  The proceeds received are reflected as deferred revenue. The
          deferred revenue and related deferred costs will be recognized into income
          as
          the joint venture sells lots to Lennar.  In March 2005, the joint
          venture closed a non-recourse development loan which was amended in September
          2006, again in December 2006, and again in October 2007.  Most
          recently, the development loan was modified to provide a one year delay
          in
          development of the project, as to date, lot development has outpaced
          sales.  Per the terms of the loan, both the Company and Lennar
          provided development completion guarantees.
 In
          the
          nine and three months ended September 30, 2007, the joint venture delivered
          48
          and 18 lots to Lennar as compared to 25 for both the nine and three months
          ended
          September 30, 2006.  Accordingly, for the nine and three months ended
          September 30, 2007, the Company recognized $1,063,000 and $408,000 in deferred
          revenue and off-site fees and $358,000 and $140,000 of deferred costs,
          respectively.  For the both the nine and three months ended September
          30, 2006, the company recognized $538,000 in deferred revenue and off-site
          fees
          and $176,000 in deferred costs.
 
 *Gross
          Margin on Land Sales*
 The
          gross
          margin on land sales for the nine and three months ended September 30,
          2007,
          were 26% and 24% as compared to 46% and 47% for the same period of
          2006.  Gross margins differ from period to period depending on the mix
          of land sold. Land, development and related costs, both incurred and estimated
          to be incurred in the future, are allocated to the cost of land sold based
          upon
          the relative sales values of the villages. Any changes resulting from a
          change
          in the estimated number of units to be sold, their related sales values,
          or
          changes in the estimated costs are allocated to the remaining unsold land
          within
          the respective village. Management reduced the estimated sales value of
          the
          remaining lots within Fairway Village in response to current market
          conditions.  As a result, the gross margins on our residential land
          sales decreased from approximately 50% to 30%.  In addition, our
          commercial acres represented a significant portion of our land sales and
          the
          commercial parcels sold generated lower margins than the residential lot
          sales.  For the commercial sales in the nine months ended September
          30, 2006, the parcels sold produced higher margins relative to those sold
          in the
          same periods of 2007.
 
 *Customer
          Dependence*
 Residential
          land sales to Lennar within our U.S. segment were $5,131,000 for the nine
          months
          ended September 30, 2007, which represents 14% of the U.S. segment’s revenue and
          8% of our total year-to-date consolidated revenue.  No customers
          accounted for more than 10% of our consolidated revenue for the nine months
          ended September 30, 2007.  However, loss of all or a substantial
          portion of our land sales, as well as the joint venture’s land sales, to Lennar
          would have a significant adverse effect on our financial results until
          such lost
          sales could be replaced.
 **Management
        and Other Fees – U.S. Operations:**
 We
        earn
        monthly management fees from all of the apartment properties that we own,
        as
        well as our management of apartment properties owned by third parties and
        affiliates of J. Michael Wilson.  Effective February 28, 2007, the
        Company’s management agreement with G.L. Limited Partnership was terminated upon
        the sale of the apartment property to a third party.  Effective April
        30, 2006, the Company’s management agreement with Chastleton Associates LP was
        also terminated upon the sale of the apartment property to a third party.
        These
        properties were previously owned by an affiliate. Management fees generated
        by
        each of these properties accounted for less than 1% of the Company’s total
        revenue.
 We
        receive an additional fee from the properties that we manage for their use
        of
        the property management computer system that we purchased at the end of 2001
        and
        a fee for vehicles purchased by the Company for use on behalf of the properties.
        The cost of the computer system and vehicles are reflected within depreciation
        expense.
 *-24-*
 *Table
            of Contents*
 The
        Company manages the project development of the joint venture with Lennar
        for a
        market rate fee pursuant to a management agreement.  These fees are
        based on the cost of the project and a prorated share is earned when each
        lot is
        sold.
 Amounts
        presented as management fees only include the fees earned from the
        non-controlled properties; the fees earned from the controlled properties
        are
        eliminated in consolidation.  For the nine and three months ended
        September 30, 2007, management fees decreased $162,000 and $101,000,
        respectively as compared to the nine and three months ended September 30,
        2006.  The decrease for the nine and three months periods was
        attributable to the termination of the management agreements with G.L. Limited
        Partnership and Chastleton Associates LP as noted above.
 
 **General,
        Administrative, Selling and Marketing Expense – U.S.
        Operations:**
 The
        costs
        associated with the oversight of our U.S. operations, accounting, human
        resources, office management and technology, as well as corporate and other
        executive office costs are included in this section. ARMC employs the
        centralized office management approach for its property management services
        for
        our properties located in St. Charles, Maryland, our properties located in
        the
        Baltimore, Maryland area and the property in Virginia and, to a lesser extent,
        the other properties that we manage. Our unconsolidated and managed-only
        apartment properties reimburse ARMC for certain costs incurred at the central
        office that are attributable to the operations of those properties. In
        accordance with EITF Topic 01-14, “*Income Statement Characterization of
        Reimbursements Received for Out of Pocket Expenses Incurred*,” the cost and
        reimbursement of these costs are not included in general and administrative
        expenses, but rather they are reflected as separate line items on the
        consolidated income statement.
 General,
        administrative, selling and marketing costs incurred within our U.S. operations
        increased $1,707,000 to $6,355,000 for the nine months of 2007 compared to
        $4,648,000 for the same period of 2006.  The 37% increase is primarily
        attributable to consulting and legal fees related to strategic planning,
        including fees associated with an evaluation of a recapitalization of the
        company, consulting services provided for our FIN 48 implementation during
        the
        first quarter of 2007, and consulting services for Sarbanes-Oxley Section
        404
        (“SOX 404”) internal control compliance testing.  Other increases
        included salaries and benefits related to the quarterly accrual in 2007 of
        estimated management bonuses that were expensed in prior years in the fourth
        quarter, accrual of expense related to new executive retention agreements
        with
        our COO and CFO executed in the third quarter of 2007, and increases in share
        appreciation rights expense resulting from the increase in our share price
        in
        the third quarter 2007.
 General,
        administrative, selling and marketing costs incurred within our U.S. operations
        increased $963,000 to $2,432,000 for the three months ended September 30,
        2007,
        compared to $1,469,000 for the same period of 2006.  The 66% increase
        is primarily attributable to consulting and legal fees related to strategic
        planning, including fees associated with an evaluation of a recapitalization
        of
        the company, and consulting services provided for SOX 404 compliance
        testing.  Other increases included salaries and benefits related to
        the quarterly accrual in 2007 of estimated management bonuses, accrual of
        expense related to new executive retention agreements with our COO and CFO
        executed in the third quarter of 2007 and increases in share appreciation
        rights
        expense resulting from the increase in our share price in the third quarter
        2007.
 We
        anticipate additional costs will be incurred as part of the company’s strategic
        planning activities noted above.  These costs include, but are not
        limited to, legal fees, consulting fees, and fees paid to the Special Committee
        to the Board of Trustees.
 
 **Depreciation
        Expense – U.S. Operations:**
 Depreciation
        expense increased $720,000 to $4,252,000 for the first nine months of 2007
        compared to $3,532,000 for the same period in 2006.  The depreciation
        expense also increased $250,000 to $1,507,000 compared to $1,257,000 for
        the
        three months ended September 30, 2006.  The year to date and quarter
        to date increases in depreciation are primarily the result of depreciation
        related to the acquisitions of Milford Station I and Milford Station II and
        the
        depreciation related to Sheffield Greens Apartments, all of which accounted
        for
        $498,000 and $174,000 of the variances, respectively.  The balance of
        the increases relate to the recent refinancings of several properties at
        the end
        of 2006 and beginning of 2007.  The Company used part of the proceeds
        to make significant investments in capital improvements at these properties
        resulting in increased depreciation expense for both the year to date and
        quarter to date periods.
 
 **Interest
        Income – U.S. Operations:**
 Interest
        income increased $267,000 to $843,000 for the nine months ended September
        30,
        2007, as compared to $576,000 for the nine months ended September 30,
        2006.  The increase was primarily attributable to additional corporate
        interest income earned on investments of cash received from the various
        apartment partnership refinancings at the end of last year and the beginning
        of
        this year and has earned interest accordingly.
 Interest
        income decreased $265,000 to $252,000 for the three months ended September
        30,
        2007, as compared to $517,000 for the three months ended September 30,
        2006.  The decrease was primarily attributable to a full year interest
        payment received from Charles County in the third quarter of 2006 totaling
        $470,000, related to interest income on the undistributed bond proceeds held
        in
        escrow by Charles County.  Prior to the third quarter of 2006, a
        formal written agreement was not in place so accrual of interest income was
        not
        appropriate.  For the third quarter 2007, interest accrued on
        undistributed bond proceeds was $159,000.  This decrease was partially
        offset by an increase in the amount of corporate interest income earned on
        investments of cash received from the various apartment partnership refinancings
        at the end of 2006 year and the beginning of 2007.
 *-25-*
 *Table
            of Contents*
 **Interest
        Expense – U.S. Operations:**
 The
        Company considers interest expense on all U.S. debt available for capitalization
        to the extent of average qualifying assets for the period.  Interest
        specific to the construction of qualifying assets, represented primarily
        by our
        recourse debt, is first considered for capitalization.  To the extent
        qualifying assets exceed debt specifically identified, a weighted average
        rate
        including all other debt of the U.S. segment is applied.  Any excess
        interest is reflected as interest expense.  For 2007 and 2006, the
        excess interest primarily relates to the interest incurred on the non-recourse
        debt from our investment properties.
 Interest
        expense increased $2,832,000 for the nine months ended September 30, 2007,
        to
        $9,436,000, as compared to $6,604,000 for the same period of
        2006.  Interest expense increased $654,000 for the third quarter of
        2007 to $3,210,000 as compared to $2,556,000 for the same period of
        2006.  The year to date and quarter to date increases were primarily
        attributable to interest expense incurred at new properties, including Sheffield
        Greens Apartments, Milford Station I and Milford Station II all of which
        accounted for $1,006,000 and $350,000 of the increase,
        respectively.  In addition, the refinancing of several apartment
        mortgages during the fourth quarter of 2006 and early first quarter 2007
        increased interest expense at Fox Chase Apartments, LLC, New Forest Apartments,
        LLC, Coachman’s Apartments LLC and Village Lake Apartments, LLC $1,168,000 and
        $404,000 for the nine and three month periods,
        respectively.  Additionally, interest expense increased as a result of
        accrued interest on uncertain tax positions associated with our implementation
        of FIN 48 in the first quarter 2007.
 For
        the
        nine and three months ended September 30, 2007, $926,000 and $325,000 of
        interest cost was capitalized.  During the same period in 2006,
        $1,355,000 and $623,000 of interest cost was capitalized.
 
 **Provision
        for Income Taxes – U.S. Operations:**
 The
        effective tax rates for the nine and three months ended September 30, 2007,
        and
        September 30, 2006, were 28% and 23% and 41% and 40%,
        respectively.  The statutory rate is 40%.  The effective tax
        rate for the nine and three months ended September 30, 2007 differs from
        the
        statutory rate due to accrued penalties on uncertain tax positions and certain
        nondeductible permanent items, which offset the benefit recorded for the
        period.  The effective tax rates for the nine and three months ended
        September 30, 2006 did not differ substantially from the effective
        rate.
 
 **Results
        of Operations – Puerto Rico Operations:**
 For
        the
        nine months ended September 30, 2007, our Puerto Rico segment generated
        $5,364,000 of operating income compared to $7,580,000 of operating income
        generated by the segment for the same period in 2006.  For the three
        months ended September 30, 2007, our Puerto Rico segment generated $1,449,000
        of
        operating income compared to $2,612,000 of operating income for the same
        period
        of 2006.  Additional information and analysis of the Puerto Rico
        operations can be found below.
 
 **Rental
        Property Revenues and Operating Expenses - Puerto Rico
        Operations:**
 Our
        rental property revenues and
        expenses are generated primarily from the 12 multifamily apartment properties
        located in the San Juan metropolitan area.  In addition, the Company
        operates a commercial rental property in the community of Parque Escorial,
        known
        as Escorial Building One (“EBO”), in which it holds a 100% ownership
        interest.  EBO is a three-story building with approximately 56,000
        square feet of offices space for lease.  The Company moved the Puerto
        Rico Corporate Office to the new facilities in the third quarter of 2005,
        and
        leases approximately 20% of the building.
 
 *Nine
        Months*
 Rental
        property revenues increased $663,000 or 4% to $16,720,000 for the nine months
        ended September 30, 2007 compared to $16,057,000 for the same period of
        2006.  The year to date increase in our rental property revenues was
        primarily the result of an overall rent increases of 3% from HUD on our
        multifamily apartment properties.  In addition, rents for our
        commercial rental property, EOB, increased 67% for the year to date period
        as a
        result of lease up efforts and new tenants.
 Rental
        property operating expenses increased $356,000 or 4% to $8,543,000 for the
        nine
        months ended September 30, 2007 compared to $8,187,000 for the same period
        of
        2006.  The year to date increase was the result of a 3% increase to
        our multifamily apartment properties operating expenses driven by overall
        inflationary adjustments as well as specific above inflation increases noted
        in
        utilities, repairs and painting.  In addition, operating expenses for
        our commercial rental property, EOB, increased 29% for the year to date period
        as a result of amortized concessions related to new tenants as well as a
        reserve
        for bad debts.
 
 *Three
        Months*
 Rental
        property revenues increased $69,000 or 1% to $5,594,000 for the three months
        ended September 30, 2007 compared to $5,525,000 for the same period of
        2006.  The quarter to date increase in our rental property revenues
        was nominal and driven by a 1% increase in rents from our multifamily apartment
        properties and a 33% increase in rents for our commercial rental property
        as a
        result of lease up efforts and new tenants.
 Rental
        operating expenses increased $162,000 or 6% to $2,905,000 for the three months
        ended September 30, 2007 compared to $2,743,000 for the same period in
        2006.  The quarter to date increase was the result of a 4% increase to
        our multifamily apartment properties operating expenses driven by overall
        inflationary adjustments as well as specific above inflation increases noted
        in
        utilities, repairs and painting.  In addition, operating expenses for
        our commercial rental property, EOB, increased 32% for the three-month period
        as
        a result of amortized concessions related to new tenants, as well as a reserve
        for bad debts.
 *-26-*
 *Table
            of Contents*
 **Community
        Development – Puerto Rico Operations:**
 Total
        land sales revenue in any one period is affected by commercial sales which
        are
        cyclical in nature and usually have a noticeable positive impact on our earnings
        in the period in which settlement is made.
 There
        were no community development land sales during the nine and three months
        ended
        September 30, 2007 and 2006.  There were no commercial contracts for
        commercial sales in backlog at September 30, 2007.
 
 **Homebuilding
        – Puerto Rico Operations:**
 The
        Company organizes corporations as needed to operate each individual homebuilding
        project.  In April 2004, the Company commenced the construction of a
        160-unit mid-rise condominium complex known as Torres del Escorial
        (“Torres”).  The condominium units were offered to buyers in the
        market in January 2005 and delivery of the units commenced in the fourth
        quarter
        of 2005.  The condominium units are sold individually from an onsite
        sales office to pre-qualified homebuyers.
 For
        the
        nine months ended September 30, 2007, homebuilding revenues decreased
        $10,230,000 or 63% to $6,113,000 as compared to $16,343,000 for the nine
        months
        ended September 30, 2006.  The decrease in year to date revenues was
        impacted by the slow housing market resulting in a decrease in the number
        of
        units sold in the respective periods, offset in part by an increase in the
        per
        unit selling prices.  For the nine months ended September 30, 2007,
        the company sold 23 units at an average selling price of $266,000 as compared
        to
        65 units at an average selling price of $251,000 per unit for the same period
        of
        2006.
 For
        the
        three months ended September 30, 2007, homebuilding revenues decreased
        $4,185,000 or 82% to $899,000 as compared to $5,084,000 for the three months
        ended September 30, 2006.  The decrease in quarter to date revenues
        was also primarily driven by a decrease in the number of units sold in the
        respective periods, offset in part by an increase in the per unit selling
        prices.  For the three months ended September 30, 2007, the company
        sold 3 units at an average selling price of $300,000 as compared to 20 units
        at
        an average selling price of $254,000 per unit for the same period of
        2006.
 The
        gross
        margins for the nine months ended September 30, 2007 and 2006 were 28% and
        25%,
        respectively.  The gross margins for the three months ended September
        30, 2007 and 2006 were 35% and 25%, respectively.   The increases
        in the gross profit margin are attributable to an increase in the sales prices
        of the units in the third and fourth buildings as well as the units sold
        in the
        third quarter of 2007 represent premium penthouse units.
 As
        of September 30, 2007, 5 units of
        Torres were under contract at an average selling price of $258,000 per
        unit.  Each sales contract is backed by a $6,000
        deposit.  For the nine months ended September 30, 2007, the Company
        had 18 new contracts and 5 canceled contracts.  For the same period in
        2006, the Company had 48 new contracts and 36 canceled contracts.  The
        Puerto Rico real estate market has slowed substantially.  The
        reduction of new contracts and the reduced pace of sales has impacted the
        Company somewhat, but not to the same extent as the overall Puerto Rico market
        decline.  The Company currently anticipates that the remaining 27
        units in Torres will continue into 2008 and that its current pricing remains
        competitive.
 
 **Management
        and Other fees – Puerto Rico Operations:**
 We
        earn
        monthly fees from our management of four non-owned apartment properties and
        four
        property-owner associations operating in Parque Escorial.  This
        section includes only the fees earned from the non-owned managed
        entities.  The fees earned from the controlled properties are
        eliminated in consolidation.
 Management
        fees increased 8% or $36,000 to $479,000 for the nine months ended September
        30,
        2007, as compared to $443,000 for the same period of 2006.  During the
        three months ended September 30, 2007 management fees increased 13% or $19,000
        to $166,000 as compared to $147,000 for the same period of 2006.  The
        year to date and quarter to date increases in our management fees resulted
        from
        increases in the annual rents in the non-owned apartment properties and from
        increases in the managed fees received from Parque Escorial Associations
        during
        the respective periods.
 
 **General,
        Administrative, Selling and Marketing Expenses – Puerto Rico
        Operations:**
 The
        costs
        associated with the oversight of our operations, accounting, human resources,
        office management and technology are included within our general,
        administrative, selling and marketing expenses.  The apartment
        properties reimburse IGP for certain costs incurred at IGP’s office that are
        attributable to the operations of those properties.  In accordance
        with EITF 01-14 the costs and reimbursement of these costs are not included
        within this section but rather, they are reflected as separate line items
        on the
        consolidated income statement.  Due to the fact that our corporate
        office is in our office building, EBO, rent expense and parking expenses
        are
        eliminated in consolidation.
 General,
        administrative, selling and marketing expenses increased 9% or $190,000 to
        $2,249,000 during the nine months ended September 30, 2007, as compared to
        $2,059,000 for the same period of 2006.  The increase is primarily
        attributable to increases in salaries and benefits related to the accrual
        in
        2007 of quarterly management bonuses that were expensed in prior years in
        the
        fourth quarter; increases in legal expenses related to the Jalexis matter,
        described in more detail in the Company’s 2006 Form 10-K; and an increase in
        share appreciation rights expense as a result of the increase in our share
        price
        during the third quarter 2007.
 During
        the quarter ended September 30, 2007, general, administrative, selling and
        marketing increased 14% or $97,000 to $801,000 as compared to $704,000 for
        the
        same period of 2006.  The increase is primarily attributable to
        increases in salaries and benefits related to the accrual in 2007 of quarterly
        management bonuses, with no comparable amounts accrued for the same period
        of
        2006; increases in legal expenses related to the Jalexis matter, described
        in
        more detail in the Company’s 2006 Form 10-K; and an increase in share
        appreciation rights expense as a result of the increase in our share price
        during the third quarter 2007.
 *-27-*
 *Table
            of Contents*
 **Depreciation
        Expense – Puerto Rico Operations:**
 Depreciation
        expense for the nine months ended September 30, 2007 increased $50,000 or
        2% to
        $2,757,000 as compared to $2,707,000 for the nine months ended September
        30,
        2006.  Depreciation expense for the three months ended September 30,
        2007 increased $13,000 or 1% to $921,000 as compared to $908,000 for the
        nine
        months ended September 30, 2006.  The nominal increases in the year to
        date and quarter to date amounts relate to depreciation expense recorded
        on the
        replacement of elevators in select apartment properties.  In addition,
        the depreciation expense increased due to the relocation of our offices
        primarily related to our corporate office furniture and leasehold
        improvements.
 
 **Interest
        Income – Puerto Rico Operations:**
 Interest
        income for the nine months ended September 30, 2007 increased $133,000 to
        $228,000 as compared to $95,000 for the same period of 2006.  The
        increase in year to date interest income was primarily attributable to the
        recognition of interest income on the El Monte note receivable.  The
        note originated as part of the sale of the complex in December 2004, at which
        point the Company determined that the cost recovery method of accounting
        was
        appropriate for gain recognition.  Accordingly, the interest income on
        this note was also deferred until the interest payment was received, which
        occurred in January 2007.  Interest income for the three months ended
        September 30, 2007 decreased $33,000 to $2,000 as compared to $35,000 for
        the
        same period of 2006.
 
 **Equity
        in Earnings from Unconsolidated Entities – Puerto Rico
        Operations:**
 We
        account for our limited partner investment in the commercial rental property
        owned by ELI and El Monte under the equity method of accounting.  The
        earnings from our investment in commercial rental property are reflected
        within
        this section.  The recognition of earnings depends on our investment
        basis in the property, and where the partnership is in the earnings
        stream.
 Equity
        in
        earnings from unconsolidated entities for the nine and three months ended
        September 30, 2007 was $2,021,000 and $175,000, respectively, compared to
        $511,000 and $168,000 for the same periods of 2006.  The year to date
        increase of $1,510,000 was related to the payment in full of the $1,500,000
        note
        receivable held by El Monte in January 2007.  The note was received as
        part of the sale of the El Monte facility, at which point the Company determined
        that the cost recovery method of accounting was appropriate for gain
        recognition.  Accordingly, revenue was deferred until collection of
        the note receivable, which occurred in January 2007.
 
 **Interest
        Expense – Puerto Rico Operations:**
 The
        Company considers interest expense on all Puerto Rico debt available for
        capitalization to the extent of average qualifying assets for the
        period.  Interest specific to the construction of qualifying assets is
        first considered for capitalization.  To the extent qualifying assets
        exceed debt specifically identified a weighted average rate including all
        other
        debt of the Puerto Rico segment is applied.  Any excess interest is
        reflected as interest expense.  For 2007 and 2006, the excess interest
        primarily relates to the interest incurred on the non-recourse debt from
        our
        investment properties.
 For
        the
        nine months ended September 30, 2007, interest expense increased $330,000
        or 8%
        to $4,681,000 as compared to $4,351,000 for the same period of
        2006.  For the three months ended September 30, 2007, interest expense
        increased $334,000 or 28% to $1,515,000 as compared to $1,181,000 for the
        same
        period of 2006.  The year to date and quarter to date increases result
        from interest expense from our working capital line of credit combined with
        an
        overall decrease in the qualified assets available for interest capitalization
        between the respective periods.
 For
        the
        nine and three months ended September 30, 2007, $129,000 and $50,000 of interest
        cost was capitalized.  During the same periods in 2006, $710,000 and
        $214,000 of interest cost was capitalized.  The decrease in amounts of
        interest capitalized was due to the substantial completion of our Torres
        project
        at the end of 2006 as completed units are not considered qualifying assets
        for
        the purposes of interest capitalization.
 
 **Minority
        Interest in Consolidated Entities – Puerto Rico
        Operations:**
 The
        Company records minority interest expense related to the minority partners’
share of the consolidated apartment partnerships earnings and distributions
        to
        minority partners in excess of their basis in the consolidated
        partnership.  Losses charged to the minority interest are limited to
        the minority partners’ basis in the partnership.  Because the minority
        interest holders in most of our partnerships have received distributions
        in
        excess of their basis, we anticipate volatility in minority interest
        expense.  Although this allows us to recognize 100 percent of the
        income of the partnerships up to distributions and losses in excess of basis
        previously required to be recognized as our expense, we will be required
        to
        expense 100 percent of future distributions to minority partners and any
        subsequent losses.
 Minority
        interest for the nine and three months period ended September 30, 2007 were
        $1,418,000 and $34,000, respectively.  Minority interest for the nine
        and three months period ended September 30, 2006 were $2,387,000 and $33,000,
        respectively.    The $969,000 decrease in minority interest
        expense for the nine months ended September 30, 2007 as compared to the nine
        month period ended September 30, 2006 was primarily the result of regular
        distributions from the surplus cash and refinancing to the minority owners
        in
        excess of their basis from our consolidated apartment
        partnerships.  In the second quarter of 2006, the Company made
        distributions of $1,100,000 to the limited partners of Colinas de San Juan
        related the mortgage refinancing of the related
        properties.    In the first quarter of 2007, the company
        made refinancing distributions of $400,000 to the limited partners of Carolina
        Associates related to the mortgage refinancing of the related
        properties.  The remainder of the difference represents a decrease in
        the operating cash distributions made between the respective
        periods.
 *-28-*
 *Table
            of Contents*
 **Provision
        for Income Taxes – Puerto Rico Operations:**
 The
        effective tax rate for the nine and three months ended September 30, 2007
        and
        2006 were 48% and 31% and 28% and 29%, respectively. The statutory rate is
        29%.  The difference in the statutory tax rate and the effective tax
        rate for the nine and three months ended September 30, 2007 is primarily
        due to
        the double taxation on the earnings of our wholly owned corporate subsidiary,
        ICP.  As a result of a non-recurring gain recorded in the first
        quarter 2007 related to its investment in El Monte, ICP’s current taxes payable
        and ACPT’s related deferred tax liability on the ICP undistributed earnings
        experienced a considerable increase for the nine months ended September 30,
        2007. In addition, the effective tax rate for the three months ended September
        30, 2007 was impacted by the effect of deferred taxes on items for which
        no
        current benefit may be recognized off-set in part by non-taxable items, such
        as
        the tax-exempt income received from our commercial partnership ELI,
        SE.   The effective rates for the nine and three months ended
        September 30, 2006 did not differ substantially from the statutory
        rate.
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 *Summary
        of Cash Flows*
 As
        of
        September 30, 2007, the Company had cash and cash equivalents totaling
        $18,643,000 and restricted cash totaling $21,518,000.  The following
        table sets forth the changes in the Company’s cash flows ($ in
        thousands):
  Nine
                    Months Ended September 30,**2007**
                
                
                2006Operating
                    Activities
                
                **$**
                **(6,968**
                **)**
                
                $
                5,272Investing
                    Activities
                
                ****
                **(7,274**
                **)**
                
                
                (32,576
                )Financing
                    Activities
                
                ****
                **5,426**
                
                
                
                20,916Net
                    Decrease in Cash
                
                **$**
                **(8,816**
                **)**
                
                $
                (6,388
                )
  For
        the nine
        months ended September 30, 2007, operating activities used $6,968,000 of
        cash
        flows compared to $5,272,000 of cash flows provided by operating activities
        for
        the nine months ended September 30, 2006.  The $12,240,000 decrease in
        cash flows from operating activities was primarily related to the $10,230,000
        decrease in homebuilding sales between periods and a decrease in community
        development land sales of $3,285,000.  Operating cash flows were also
        impacted by $23,181,000 of additions to our community development assets
        for the
        nine months ended September 30, 2007, $6,392,000 in excess of the additions
        during the same period of 2006.  Pursuant to agreements with the
        Charles County Commissioners, the company is committed to completing $23
        million
        of infrastructure.  We anticipate $11.4 million to be spent over the
        next twelve months.  An additional $3.9 million  of
        development is under contract that is expected to be incurred over the next
        36
        months.  These uses of cash were offset by a decrease of $5,313,000 in
        our homebuilding expenditures for the nine months ended September 30, 2007,
        as
        compared to the same period in 2006.  As of September 30, 2007, the
        Torres project was substantially complete, whereas it was undergoing significant
        construction during 2006.  In addition, the company received a
        $2,000,000 fee during the second quarter 2007 related to a right of way
        agreement.  From period to period, cash flow from operating activities
        is also impacted by changes in our net income, as discussed more fully above
        under "Results of Operations," as well as other changes in our receivables
        and
        payables.
 For
        the
        nine months ended September 30, 2007, net cash used in investing activities
        was
        $7,274,000 compared to $32,576,000 for the same period of 2006.  Cash
        provided by or used in investing activities generally relates to increases
        in
        our investment portfolio through acquisition, development or construction
        of
        rental properties and land held for future use, net of returns on our
        investments. The $25,302,000 decrease in the cash used in investing activities
        between periods was primarily the result of $20,096,000 additions to our
        rental
        property portfolio in the United States, through acquisition and construction
        during the nine months ended September 30, 2006, compared to $6,298,000 in
        the
        same period of 2007.  This decrease primarily related to the
        acquisition of Milford I and Milford II during the nine months ended September
        30, 2006, with no comparable acquisitions in 2007.  In addition, we
        completed the construction of Sheffield Greens Apartments during the first
        quarter of 2007, whereas during the first nine months of 2006 we invested
        $16,577,000 in construction.  These differences were partially offset
        by the 11 additional properties added to our consolidation as of January
        1,
        2006, under the new provisions of EITF-04-05, at which point we added $4,723,000
        to the consolidated cash balance.
 For
        the
        nine months ended September 30, 2007, net cash provided by financing activities
        was $5,426,000 as compared to $20,916,000 for the nine months ended September
        30, 2006.  The decrease in cash provided by financing activities was
        primarily the result of reduced proceeds from debt financing, related to
        the
        mortgages for the Milford I and Milford II acquisition in 2006.  In
        addition, cash flows from financing activities decreased as a result of reduced
        distribution payments made to minority interests as well as decreased dividends
        paid to shareholders.  Distributions to limited partners decreased as
        a result of reduced refinancing distributions between
        periods.  Dividends to shareholders during the first nine months of
        2007 were consistent with the distributions declared in the same period of
        2006
        with the exception of a non-recurring special dividend distribution made
        in the
        first half of 2006.  Partially offsetting these decreases was an
        increase in draws on the Charles County bond escrow as construction of
        infrastructure within St. Charles continues and a decrease in debt repayments
        as
        the nine months of 2006 included curtailments of the Torres construction
        loan
        with no curtailments recorded in 2007 as the facility was repaid in December
        2006.
 *-29-*
 *Table
            of Contents*
 *Contractual
        Financial Obligations*
 The
        following chart reflects our contractual financial obligations as of September
        30, 2007:
 **Payments
                    Due By Period****Less
                    Than**
                
                
                
                
                
                
                
                
                **After****Total**
                
                
                **1
                    Year**
                
                
                **2-3
                    Years**
                
                
                **4-5
                    Years**
                
                
                **5
                    Years**Recourse
                    debt-community developmentand
                    homebuilding
                
                $
                25,835
                
                
                $
                1,404
                
                
                $
                4,708
                
                
                $
                3,300
                
                
                $
                16,423Capital
                    lease obligations
                
                
                117
                
                
                
                18
                
                
                
                57
                
                
                
                35
                
                
                
                7Total
                    Recourse Debt
                
                
                25,952
                
                
                
                1,422
                
                
                
                4,765
                
                
                
                3,335
                
                
                
                16,430Non-recourse
                    debt-community development
                
                
                500
                
                
                
                500
                
                
                
                -
                
                
                
                -
                
                
                
                -Non-recourse
                    debt-investment properties
                
                
                279,296
                
                
                
                3,779
                
                
                
                14,953
                
                
                
                9,202
                
                
                
                251,362Total
                    Non-Recourse Debt
                
                
                279,796
                
                
                
                4,279
                
                
                
                14,953
                
                
                
                9,202
                
                
                
                251,362Operating
                    lease obligations
                
                
                1,211
                
                
                
                301
                
                
                
                718
                
                
                
                192
                
                
                
                -Purchase
                    obligations
                
                
                38,290
                
                
                
                20,126
                
                
                
                17,910
                
                
                
                54
                
                
                
                200Total
                    contractual financial obligations
                
                $
                345,249
                
                
                $
                26,128
                
                
                $
                38,346
                
                
                $
                12,783
                
                
                $
                267,992
 Recourse
        Debt - U.S. Operations
 On
        April
        14, 2006, the Company closed a three-year $14,000,000 revolving line of credit
        loan (“the Revolver”) secured by a first lien deed of trust on property located
        in St. Charles, MD.  The maximum amount of the loan at any one time is
        $14,000,000.  The facility includes various sub-limits on a revolving
        basis for amounts to finance apartment project acquisitions and land development
        in St. Charles.  The terms require certain financial covenants to be
        calculated annually as of December 31, including a tangible net worth to
        senior
        debt ratio for ALD and a minimum net worth test for ACPT.  The Company
        was in compliance with these financial covenants as of September 30,
        2007.  As of September 30, 2007, no amounts were outstanding on the
        Revolver.
 Pursuant
        to an agreement reached between ACPT and the Charles County Commissioners
        in
        2002, the Company agreed to accelerate the construction of two major roadway
        links to the Charles County (the "County") road system. As part of the
        agreement, the County agreed to issue general obligation public improvement
        Bonds (the “Bonds”) to finance $20,000,000 of this construction
 guaranteed
        by letters of credit provided by Lennar as part of a residential lot sales
        contract for 1,950 lots in Fairway Village.  The Bonds were issued in three
        installments with the final $6,000,000 installment issued in March 2006. 
The Bonds bear interest rates ranging from 4% to 8%, for a blended lifetime
        rate
        for total Bonds issued to date of 5.1%, and call for semi-annual interest
        payments and annual principal payments and mature in fifteen
        years.  Under the terms of bond repayment agreements between the
        Company and the County, the Company is obligated to pay interest and principal
        on the full amount of the Bonds; as such, the Company recorded the full amount
        of the debt and a receivable from the County representing the undisbursed
        Bond
        proceeds to be advanced to the Company as major infrastructure development
        within the project occurs.  As part of the agreement, the Company will
        pay the County a monthly payment equal to one-sixth of the semi-annual interest
        payments and one-twelfth of the annual principal payment due on the
        Bonds.  The County also requires ACPT to fund an escrow account from
        lot sales that will be used to repay this obligation.
 In
        August
        2005, the Company signed a memorandum of understanding ("MOU") with the Charles
        County Commissioners regarding a land donation that is anticipated to house
        a
        planned minor league baseball stadium and entertainment
        complex.  Under the terms of the MOU, the Company donated 42 acres of
        land in St. Charles to the County on December 31, 2005. The Company also
        agreed
        to expedite off-site utilities, storm-water management and road construction
        improvements that will serve the entertainment
 complex
        and future portions of St. Charles so that the improvements will be completed
        concurrently with the entertainment complex.  The County will be
        responsible for infrastructure improvements on the site of the complex. In
        return, the County agreed to issue $7,000,000 of general obligation bonds
        to
        finance the infrastructure improvements.  In March 2006, $4,000,000 of
        bonds were issued for this project, with an additional $3,000,000 issued
        in
        March 2007.  The funds provided by the County for this project will be
        repaid by ACPT over a 15-year period.  In addition, the County agreed
        to issue an additional 100 school allocations a year to St. Charles commencing
        with the issuance of bonds.
 In
        December 2006, the Company reached an agreement with Charles County whereby
        the
        Company receives interest payments on any undistributed bond proceeds held
        in
        escrow by the County.  The agreement covers the period from July 1,
        2005, through the last draw made by the Company. For the nine and three months
        ended September 30, 2007, the Company recognized $458,000 and $153,000 of
        interest income on these escrowed funds.
 *-30-*
 *Table
            of Contents*
 Recourse
        Debt - Puerto Rico Operations
 Substantially
        all of the Company's 490 acres of community development land assets in Parque
        El
        Comandante within the Puerto Rico segment are encumbered by recourse debt.
         The homebuilding and land assets in Parque Escorial are unencumbered as of
        September 30, 2007.  On September 1, 2006, LDA secured a revolving
        line of credit facility of $15,000,000 to be utilized as follows: (i) to
        repay
        its outstanding loan of $800,000; and (ii) to fund development costs of a
        project in which the Company plans to develop a planned community in Canovanas,
        Puerto Rico, to fund acquisitions and/or investments mainly in real estate
        ventures, to fund transaction costs and expenses, to fund future payments
        of
        interest under the line of credit and to fund any future working capital
        needs
        of the Company.  The line of credit bears interest at a fluctuating
        rate equivalent to the LIBOR Rate plus 200 basis points (7.36% at September
        30,
        2007) and matures on August 31, 2008.  The outstanding balance of this
        facility on September 30, 2007, was $1,725,000.
 
 Non-Recourse
        Debt - U.S. Operations
 As
        more
        fully described in Note 4 to our Consolidated Financial Statements included
        in
        this Form 10-Q, the non-recourse apartment properties' debt is collateralized
        by
        apartment projects.  As of September 30, 2007, approximately 38% of this
        debt is secured by the Federal Housing Administration ("FHA") or the Maryland
        Housing Fund.
 Non-recourse
        debt within our U.S. operations also includes a construction loan for a new
        apartment project in St. Charles.  On August 11, 2005, Sheffield
        Greens Apartments, LLC ("Sheffield Greens"), a wholly owned subsidiary of
        the
        Company, obtained a non-recourse construction loan of $27,008,000 to fund
        the
        construction costs for a new apartment property in St. Charles' Fairway Village.
        The construction loan was converted to a permanent mortgage on October 16,
        2007.
        The loan has a fixed interest rate of 5.47%, and requires principal and interest
        payments until maturity. The loan is subject to a HUD regulatory agreement.
        The
        loan documents provide for covenants and events of default that are customary
        for mortgage loans insured by the Federal Housing Authority.
 On
        January 31, 2007, Coachman’s Apartments, LLC (“Coachman’s”), a majority-owned
        subsidiary of the Company, secured a non-recourse mortgage of $11,000,000.
        The
        ten-year loan, amortized over 30 years, has a fixed interest rate of 5.555%,
        requires principal and interest payments through maturity and a balloon payment
        at the maturity date, February 1, 2017. The prior mortgage of $6,020,000
        was
        repaid and the net proceeds from the refinancing will be used for overall
        apartment property improvements, the repayment of recourse debt, future
        development efforts and potential acquisitions.
 On
        February 1, 2007, Village Lake Apartments, LLC (“Village Lake”), a
        majority-owned subsidiary of the Company, secured a non-recourse mortgage
        of
        $9,300,000. The ten-year loan, amortized over 30 years, has a fixed interest
        rate of 5.72%, requires principal and interest payments through maturity
        and a
        balloon payment at the maturity date, February 1, 2017. The prior
 mortgage
        of $6,981,000 was repaid and the net proceeds from the refinancing will be
        used
        for overall apartment property improvements, the repayment of recourse debt,
        future development efforts and potential acquisitions.
 In
        the
        fourth quarter of 2005, the Company purchased 22 residential acres adjacent
        to
        the Sheffield Neighborhood in St. Charles for $1,000,000.  The Company
        paid $500,000 in cash and signed a two-year, non-interest bearing, non-recourse
        note, for $500,000 due on November 23, 2007.
  Non-Recourse
        Debt - Puerto Rico Operations
 As
        more
        fully described in Note 4 to our Consolidated Financial Statements included
        in
        this Form 10-Q, the non-recourse debt is collateralized by the respective
        multifamily apartment project or commercial building.  As of September 30,
        2007, approximately 1% of this debt is secured by the Federal Housing
        Administration ("FHA").  There were no significant changes to our
        non-recourse debt obligations during the nine months ended September 30,
        2007.
 
 Purchase
        Obligations and Other Contractual Obligations
 In
        addition to our contractual obligations described above, we have other purchase
        obligations consisting primarily of contractual commitments for normal operating
        expenses at our apartment properties, recurring corporate expenditures including
        employment, consulting and compensation agreements and audit fees, non-recurring
        corporate expenditures such as improvements at our investment properties,
        the
        construction of the new apartment projects in St. Charles, costs associated
        with
        our land development contracts for the County’s road projects and  the
        development of our land in the U.S. and Puerto Rico. Our U.S. and Puerto
        Rico
        land development and construction contracts are subject to increases in cost
        of
        materials and labor and other project overruns. Our overall capital requirements
        will depend upon acquisition opportunities, the level of improvements on
        existing properties and the cost of
 future
        phases of residential and commercial land development.
 *Liquidity
            Requirements*
 Our
            short-term liquidity requirements consist primarily of obligations under
            capital
            and operating leases, normal recurring operating expenses, regular debt
            service
            requirements, non-recurring expenditures and dividends to common
            shareholders.  The Company has historically met its liquidity
            requirements from cash flow generated from residential and commercial
            land
            sales, home sales, property management fees, and rental property revenue.
            However, the Company has noted a current reduction in the demand for
            residential
            real estate in the St. Charles and Parque Escorial markets.  Should
            this reduced demand result in a significant decline in the prices of
            real estate
            in the St. Charles and Parque Escorial markets or defaults on our sales
            contracts, it could adversely impact our cash flows.  Specifically
            related to St. Charles, although Lennar is contractually obligated to
            take 200
            lots per year, the market is not sufficient to absorb this sales
            pace.  Accordingly, Lennar’s management requested a reduction of the
            200 lot requirement and the lot price.  Related to our commercial
            land, reduced demand for our commercial property could result in significantly
            reduced prices of our commercial real estate and adversely impact our
            cash
            flows.
 *-31-*
 *Table
            of Contents*
 For
        the
        remainder of 2007 and into 2008, the Company plans to explore opportunities
        in
        Florida while continuing its development activity within the master planned
        communities in St. Charles and Puerto Rico and may commit to future contractual
        obligations as needed.  Future acquisitions may be financed through a
        combination of Company equity, third-party equity and market rate
        mortgages. The
          Company anticipates the completion of several large infrastructure projects
          in
          2008 which will open up access to future villages.  While much of
          these costs were funded through bonds issued by Charles County, there remains
          a
          difference of approximately $10,000,000 between the cost of the projects
          and the
          bonds issued by Charles County.   The Company expects to fund the
          difference out of cash flow and/or financing between now and the end of
          2008.  Further, we may seek additional development loans and permanent
          mortgages for continued development and expansion of other parts of St.
          Charles
          and Parque Escorial along with other potential rental property
          opportunities.  Anticipated cash flow from operations, existing loans,
          refinanced or extended loans, and new financing are expected to meet our
          financial commitments for the next 12 months. However, there are no assurances
          that these funds will be generated.  Accordingly, the Company will be
          carefully monitoring cash flow requirements over the next 12
          months.
 The
          Company will evaluate and determine on a continuing basis, depending upon
          market
          conditions and the outcome of events described under the section titled
          "Forward-Looking Statements," the most efficient use of the Company's capital,
          including acquisitions and dispositions, purchasing, refinancing, exchanging
          or
          retiring certain of the Company's outstanding debt obligations, distributions
          to
          shareholders and its existing contractual obligations.
  **ITEM
                  3.**
              **QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK**
 
 The
        Company is exposed to certain financial market risks, the most predominant
        being
        fluctuations in interest rates.  Interest rate fluctuations are
        monitored by the Company's management as an integral part of the Company's
        overall risk management program, which recognizes the unpredictability of
        financial markets and seeks to reduce the potentially adverse effect on the
        Company's results of operations.
 As
        of
        September 30, 2007, there have been no material changes in the Company's
        financial market risk since December 31, 2006, as discussed in the Company's
        Annual Report on Form 10-K.
 
 **ITEM
                  4.**
              **CONTROLS
                  AND
                  PROCEDURES**
 
 **Evaluation
        of Disclosure Controls and Procedures**
 In
        connection with the preparation of this Form 10-Q, as of September 30, 2007,
        an
        evaluation was performed under the supervision and with the participation
        of the
        Company's management, including the CEO and CFO, of the effectiveness of
        the
        design and operation of our disclosure controls and procedures as defined
        in
        Rule 13a-15(e) under the Exchange Act. In performing this evaluation, management
        reviewed the selection, application and monitoring of our historical accounting
        policies. Based on that evaluation, the CEO and CFO concluded that these
        disclosure controls and procedures, because of the material weakness in internal
        control discussed below, were not effective in ensuring that the information
        required to be disclosed in our reports filed with the SEC is recorded,
        processed, summarized and reported on a timely basis.
 During
        the preparation of the Company's 2004 tax returns in the fourth quarter 2005,
        the Company became aware that certain intercompany interest income was subject
        to U.S. withholding tax when the interest was paid and certain income from
        its
        Puerto Rico operations could be treated as income of ACPT even though it
        was not
        distributed to ACPT. The Company determined that neither the obligation to
        pay
        the withholding tax or exposure related to the tax status had been previously
        accrued. Accordingly, the Company announced on November 15, 2005, that the
        Company would restate financial statements for the periods covered in its
        Form
        10-K for the fiscal year ended December 31, 2004, and the Forms 10-Q for
        the
        first two quarters of fiscal 2005 to correct previously reported amounts
        related
        to these income tax matters.
 The
        Company determined the accounting errors referenced above indicated a material
        weakness in internal controls with respect to accounting for income taxes. 
A material weakness in internal control is a significant deficiency, or
        combination of significant deficiencies, that results in more than a remote
        likelihood that a material misstatement of the financial statements would
        not be
        prevented or detected on a timely basis by the Company.  The Company has
        implemented controls and procedures designed to remediate this material
        weakness. These controls and procedures include hiring a new Director of
        Tax who
        will help manage the tax compliance and tax accounting process, retaining
        international tax advisors to provide the Company with updates related to
        changes in international tax laws impacting the Company, providing in-house
        tax
        professionals and senior financial management with additional training to
        enhance their awareness of potential international tax matters and
        implementation of other additional control procedures related to accounting
        for
        income taxes.  In order to remediate the material weakness, management
        must ensure that these new controls
 and
        procedures are operating effectively and fully address the risks giving rise
        to
        the material weakness.  Management believes that once sufficient
        evidence of the operating effectiveness of these controls exists, the material
        weakness will be fully remediated.
 
 *-32-*
 *Table
            of Contents*
 **PART
                  II**
              **OTHER
                  INFORMATION**
 
 **ITEM
                  1.**
              **LEGAL
                  PROCEEDINGS**
 
 See
        the
        information under the heading "Legal Matters" in Note 5 to the consolidated
        financial statements in this Form 10-Q for information regarding legal
        proceedings, which information is incorporated by reference in this Item
        1.
 
 **ITEM
                  1A.**
              **RISK
                  FACTORS**
 
 There
        has
        been no material change in the Company’s risk factors from those outlined in the
        Company’s Annual Report on Form 10-K for the year ended December 31,
        2006.
 
 **ITEM
                  2.**
              **UNREGISTERED
                  SALES OF EQUITY SECURITIES AND USE OF
                  PROCEEDS**
 
 None.
 
 **ITEM
                  3.**
              **DEFAULTS
                  UPON SENIOR
                  SECURITIES**
 
 None.
 
 **ITEM
                  4.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY
                  HOLDERS**
 
 None.
 
 **ITEM
                  5.**
              **OTHER
                  INFORMATION**
 
 None.
 
 **ITEM
                  6.**
              **EXHIBITS**
 
 (A)
              Exhibits31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive
                  Officer31.2
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1
              Section
                  1350 Certification of Chairman and Chief Executive Officer32.2
              Section
                  1350 Certification of Chief Financial Officer
 
 *-33-*
 *Table
            of Contents*
 **SIGNATURES**
 
 
 Pursuant
        to the requirements of the Securities and Exchange Act of 1934, the registrant
        has duly caused this report to be signed on its behalf by the undersigned
        thereunto duly authorized.
 
 AMERICAN
                  COMMUNITY PROPERTIES TRUST(Registrant)Dated:  November
                  14, 2007
              By:
              /s/
                  J. Michael WilsonJ.
                  Michael Wilson
                Chairman
                  and Chief Executive OfficerDated:  November
                  14, 2007
              By:
              /s/
                  Cynthia L. HedrickCynthia
                  L. Hedrick
                Chief
                  Financial OfficerDated:  November
                  14, 2007
              By:
              /s/
                  Matthew M. MartinMatthew
                  M. Martin
                Chief
                  Accounting Officer